Wartime Economy : As soldiers pick up their guns, many U.S. consumers may put down their checkbooks and postpone major purchases.

Economic policy-makers here, waiting to see what impact the Persian Gulf War will have on the U.S. economy, might well have appreciated the scene Wednesday night at VideoConcepts, an electronics products store in the South Coast Plaza mall in Costa Mesa, when a crowd of about 80 people gathered before a big-screen television set to soak up details of the first U.S. air strike against Iraq.

“I originally came here to buy a TV set, but after hearing the news, I felt empty and decided not to buy,” said Mark Foringer, a bystander. “I just felt I wanted to be home with my family. I felt like I want to be with people I love.”

It isn’t clear yet whether Foringer is about to return to buy a television set. But the hesitancy and apprehension he expressed as the Persian Gulf War began to unfold may be emblematic of consumer attitudes nationwide. Until the conflict in the Mideast is resolved, many Americans may put much of the buying on hold.

And Foringer’s sentiment underscores what nearly all economists--in the federal government, academia and U.S. business--take as a given: that U.S. economic health and the recovery from recession depend in large measure on the outcome of the war.

Lawrence Kudlow, an economist and managing director of research at Bear, Stearns & Co. in New York, argued that a victory, coupled with a dramatic show of leadership by the Bush Administration, should provide a jolt of renewed public pride that could spill over into the economy.

“I think what will help confidence, more than just the fact that oil prices are falling, is the fact that American leadership has performed superbly,” he said. “That should counter the malaise effect that came from the budget negotiations last fall, when everybody was down on America.”

In fact, most analysts believe that a rebound in consumer confidence could be just the tonic necessary to cure the economy of the recession that began last fall. Federal Reserve Board Chairman Alan Greenspan has said that he thinks the shock to consumer confidence brought on by the Persian Gulf crisis turned last summer’s economic slowdown into a full recession, and now believes that the recovery will gradually begin when consumers and businesses no longer feel so uncertain about the future.

If the fighting is over quickly, its impact on the American economy should be relatively modest, most government and private economists and policy-makers believe.

A short war--won quickly by the U.S.-led coalition--would lead to a quick rebound in the economy, which has been dragged down by an unprecedented drop in consumer confidence ever since the Persian Gulf crisis began last August. While the war itself would not bring about a recovery, a rapid end to it would--by lifting the cloud of uncertainty that has curbed consumer and business spending over the past five months.

So far, of course, most of the news has been good--on both the military and the economic fronts.

As a result, economic policy-makers in Washington, both at the White House and the Fed, are keeping a low profile, content merely to monitor the euphoric market response to the initial American military successes. Fed Chairman Greenspan and other monetary authorities don’t see any need for the central bank to intervene in the financial markets or the banking system, Fed officials said Friday. Administration economic policy-makers have also been quiet since the war began, and are now refusing to comment on the likely impact of the war on the economy.

As the war progresses, the financial markets, rather than Washington policy-makers, are likely to provide the best barometer of how the economy is responding to the conflict.

And, as they have proved in the days since the invasion began, oil prices will provide a nearly instant temperature reading.

So far, fears that oil prices would soar to new records, hitting the American economy with yet another body blow, have proven unfounded. Now, analysts are wondering instead how low prices may fall.

Analysts say that a quick American victory, coming at a time when oil traders see a glut in the oil market, will depress prices down to levels below the $18 to $21 range that were in place before the crisis began. “I think we will see prices fall to about $15 per barrel as soon as the war is over,” says James Placke, a senior consultant at Cambridge Energy Research Associates, a Cambridge, Mass.-based energy consulting firm.

Oil experts add that the fact that Saudi Arabian oil fields appear to be safe from Iraqi attack--along with the Bush Administration’s quick release of more than 1 million barrels per day from the U.S. Strategic Petroleum Reserve--have worked in tandem to drain the so-called war premium out of oil prices.

Placke noted that the effectiveness of American air defenses in Saudi Arabia--which apparently destroyed at least one Scud missile aimed at Saudi territory--should further bolster the belief in the oil markets that the Saudi fields remain secure. By contrast, the Iraqi attack on one oil storage facility in the neutral zone between Kuwait and Saudi Arabia was considered “irrelevant” to the ability of Saudi Arabia’s oil industry to continue normal operations, said Robert Esser, an oil industry geologist and consultant.

So while oil prices rose briefly again Friday morning in the wake of Iraq’s missile attacks on Israel and Saudi Arabia, they fell again later in the day, back to the low levels that held after Thursday’s record $10-per-barrel plunge.

“The oil markets have assumed that the threat to the Saudi fields has all but disappeared,” says John Lichtblau, an oil market expert at the Petroleum Industry Research Council in New York.

For the broader economy, lower oil prices should slash inflation, which is already showing signs of easing. Lower consumer prices would in turn strengthen consumer confidence, thus helping to rid the economic system of its war-related despair.

Similarly, a quick victory would rekindle the euphoria in the global financial markets that marked the first successful day of fighting, but which waned on Friday following the missile attacks on Israel and Saudi Arabia.

Experts say that while a brief boom on Wall Street would probably not be enough to spark a recovery on its own, it could still enhance consumer and business confidence, and would also tend to reduce public fears about the fragility of the nation’s financial and banking systems.

Most economists also believe that once the war is over and the uncertainty surrounding it evaporates, economic fundamentals will come back into play. Then, consumers and businesses will be able to see that inflation has eased--and that interest rates are plunging.

Once the initial shock of the start of the war is past, people will see that “economic demand is depressed, and you will see interest rates going down further,” said Gordon Richards, chief economist for the National Assn. of Manufacturers in Washington.

“Inflation is not a threat anymore, that is the message were getting” from the market’s wild response to the possibility of a quick victory, Kudlow added.

But analysts note that even a very short war will still place new burdens on the American economy. And, despite the euphoria that greeted America’s initial successes, economists today are trying to debunk the old saw that war tends to be good for business.

Even apart from the human toll, the costs to the U.S. government will be heavy even if the war is over within a few weeks. In a new report, the Congressional Budget Office estimates that a short war could cost anywhere between $28 billion and $86 billion, with costs running at the higher end of that range if all of the military equipment lost during the conflict is replaced.

Most economists believe that the Bush Administration will not be willing to impose higher taxes to pay for the costs of the war, and that U.S. allies will not cover all of America’s military expenses. So the alternative will be more government borrowing and an even bigger budget deficit, which will then make it more difficult for Congress and the White House to continue to adhere to last fall’s budget agreement.

“The deficit will look so bad, that the old (budget) agreement will look like a joke,” warned Barry Bosworth, an economist at the Brookings Institution in Washington. “So, over the longer term, (the higher deficit) will reduce private investment and savings in the economy.”

Others caution, of course, that it is still too early to predict that victory will be quick and easy. And if the worst happens, and the fighting goes badly and the war turns into a bloody stalemate, Operations Desert Storm would almost certainly lead to a much more severe recession than most economists and policy-makers now expect.

Abroad and lengthy expansion in defense spending at a time when the federal budget deficit is already soaring would lead to higher interest rates and worsening inflation, while uncertainty over the war would continue to cloud oil prices and make it difficult for consumers and businesses to plan ahead. Stagflation, which plagued the economy in the wake of the Vietnam War, could be the result, analysts argue.

So like the White House and the nation’s military planners, economists warn that it is still too early to declare victory, or to predict very confidently whether an economic recovery is in sight.

“I do get an uneasy feeling that maybe we should just wait and see what happens,” said Robert Reischauer, director of the Congressional Budget Office.

Times staff writer Cristina Lee contributed to this story.