The attacks that destroyed the World Trade Center and damaged the Pentagon brought the US economy to an unprecedented halt and made a recession far more likely than before.
Six days ago, the economy seemed to be at best stagnant. Now, as a result of last week alone, many experts believe that it is already contracting, perhaps by as much as an annual rate of 1 percent.The immense loss of output -- from airline travel, Wall Street brokerage fees and retail sales -- will reduce corporate profits that were shrinking rapidly. That, in turn, could lead to a fresh surge in layoffs, economists said. Even as Wall Street prepares to reopen, the terrorist attacks and the possibility of reprisals are likely to aggravate the unwinding of consumer confidence that was already under way.
In hopes of preventing the situation from worsening, the Bush administration and Congress suspended all talk about preserving the Social Security surplus and quickly approved a US$40 billion spending bill -- half for battling terrorists, half for helping their victims. More will come later, policy makers said. The Federal Reserve is also prepared to cut interest rates again.
PHOTO: NY TIMES
The government's goal, like that of those rushing to open the stock market, is to restore a semblance of normalcy and keep a staggering economy from turning into something much worse.
What makes it hard to gauge the effect of the attack is a lack of precedent. "We can only speculate, because we've never seen anything like this before," said Carl B. Weinberg, the chief economist at High Frequency Economics, a consulting firm in Valhalla, New York.
Still, individual events, even enormously tragic ones, usually have only a temporary effect on major economies. Economists do not question whether the US economy will recover from last week's attacks. The disagreement is over how quickly and strongly it will rebound.
"People like ourselves often tend to exaggerate the economic effects" of individual events, said John Walker, chief economist at Oxford Economics, a consulting firm in the British city for which it is named.
Hard to exaggerate
It would be hard, however, to exaggerate what happened last week. For a while, US business was paralyzed as never before. People simply stopped working.
The executives of Dannon, the food company, who had flown to Florida for their annual conference, cut short their sales meeting and chartered a bus to drive them home to suburban New York. In Cincinnati, the 180 stores of the Kenwood Mall closed. In Seattle, the fishmongers at Pike Place Market stopped their famous ritual of throwing fish through the air to amuse tourists. And across the US, in the stores that remained open, many people behaved as they did at a Barnes & Noble bookstore in Bend, Oregon -- venturing out not to shop but to talk with one another and to seek comfort.
The skies were empty of commercial airliners, factories canceled shifts, sports leagues postponed games, Broadway theaters went dark, financial markets closed, jaunty advertising diminished and truck drivers pulled off highways to watch the tragedy unfold on television at roadside rest stops. Even on Friday, three days after the terrorist attacks, the worst in the nation's history, the US was still in the process of getting back to work.
"As long as there is shock and grief, your mind is somewhere else, and not on buying a new car, or on fixing the bedroom and kitchen, or on anything that requires an effort out of the routine," said Daniel Yankelovich, chairman of DYG, a public opinion polling company. "The question is how long does it take to get over the shock and grief, and if you are not personally touched by this tragedy, that is probably two or three weeks."
Two or three weeks can produce enough damage, economists say, to postpone the rebound that many forecasters had expected by Christmas and to tip an already weak economy into recession. With the unemployment rate already having spiked to 4.9 percent last month, from 4.5 percent, jobs are particularly vulnerable.
Virtually no executives mentioned layoffs last week. On the contrary, companies embraced and comforted their workers, and the downsizing announcements that had proliferated through Monday -- there were a dozen on that day alone -- shrank to only two for the rest of the week, a survey by Challenger, Gray & Christmas showed.
But many managers face an even greater profit crunch now than they did a week ago, forcing thoughts of job losses eventually. "Cutting staff has to be an issue in everyone's head," said Earnest Deavenport Jr, chairman of the Eastman Chemical Co, "but it is too early to speculate on that."
Lawrence Bates, a Cincinnati businessman, is already concerned. He founded and still runs a 15-person operation, now a subsidiary of NetSetGo, that helps corporate clients buy computer systems and use the Internet. His two sales representatives normally bring in two or three new orders a week, a flow that Bates says he must maintain to keep his staff fully employed. Last week, however, for the first time in years, there was no new business.
"Our sales people are out there, but no one wants to do business," he said. "The conversations are only about what happened in New York. I don't expect this to continue, but without new business we can go for only a week or two longer without layoffs."
As a result of the terrorist attacks, security is proliferating, and that is becoming a drag on efficiency, further slowing the economy. The Toyota assembly plant in Georgetown, Kentucky, halted production Friday night, idling 8,000 workers, because three tractor-trailers loaded with parts made in Canada were delayed in getting across the border.
"We understand the extra time needed for security checks, but this is starting to have a significant economic impact, and we have complained to our Congressional representatives," said Dennis Cuneo, a senior vice president. The border delays reduced production at the Georgetown plant and one in Indiana by 3,500 vehicles last week, or 15 percent of the usual run at Toyota's three US assembly plants.
0ptimism sours
By the end of last week, many businesses had returned to near normal operations, although shopping was subdued, retailers said. And some once-optimistic forecasters shifted on Friday to the view that the economy might continue shrinking into the fourth quarter.
If the gross domestic product, a measure of the value of all the output of goods and services, shrinks in the third quarter, as many economists now expect, it would be the first quarterly decline since 1993. The economy would be in its weakest condition since the recession of 1990 to 1991. Many people define a recession as two consecutive quarters of contraction.
In the second quarter of this year, the economy grew just 0.2 percent, according to the government's latest estimate. And now the spending that made even this meager growth possible is at risk.
"People stop buying things and that is how you turn a slowdown into a recession," said Janet Yellen, an economist in the Clinton administration and now a professor at the University of California at Berkeley.
Companies themselves are reluctant to push sales. The marathon television news coverage has been nearly devoid of advertisements. Richard Edelman, chief executive of Edelman Public Relations Worldwide, has told his corporate clients since Tuesday to postpone the introduction of new products until late October or early November and to emphasize a public service role or a helping hand in their advertising.
Edelman was in Omaha when the planes hit the World Trade Center towers, and with flights canceled he drove east the next day. "I was listening to radio ads for products, and they sounded hollow, tinny," he said. "They were not in keeping with the tragic scenes that people were seeing on television."
When those scenes were broadcast across television screens on Tuesday morning -- as the work day was starting on the East Coast and as people were awakening out West -- John Smith was dressed and ready to leave for work, shortly before 7am in Seattle, when his phone rang. His brother was on the other end of the line, and he said two airplanes had crashed into the World Trade Center in New York.
By the time Smith arrived at the Starbucks corporate offices just south of downtown Seattle, a group of the company's executives and the team in charge of security were already meeting. Their first task, he said, was to figure out what had happened to the employees of the stores closest to the towers, including the one in the nearby World Financial Center.
Their efforts were repeated in hundreds of companies around the country. People gathered around televisions to hear what would happen next, and they anxiously worked their phones, trying to find colleagues, friends and relatives who might be in southern Manhattan.
The Starbucks executives' worst fears proved unfounded; all of their employees were located within a couple of hours. But the wider tragedy was far worse than any of them had imagined.
At 10:30am -- 1:30pm. in New York -- Smith left a voice-mail message for all 2,900 stores across North America, telling managers and workers to shut down for the day. "We told them that the threat of physical harm was minimal," Smith said, "but that we were concerned about the emotional well-being of our people."
"You couldn't return to business as usual," he said.
Jay Stein, 56, the chairman of Steinmart, a high-end retail chain in the south, had come to New York last week for an annual industry meeting. On Tuesday morning, he was exercising on a treadmill at an apartment his company owns, watching television, when the news broke. He quickly canceled a breakfast meeting, checked on the safety of his employees (30 were in New York with him), invited them over to comfort one another in a sort of living-room wake, and closed the stores in his chain by mid-afternoon. Sales revenue was already growing much more slowly this year than last, he said, and the terrorist attacks would translate into a sharp decline in the short term. "The question is how short is short term," he said, speculating that once the television coverage receded, many people would return to their old habits.
On Tuesday night, President Bush tried to assure people that, as far as the economy was concerned, the short term would be very short. In a brief address from the Oval Office, he declared that "the American economy will be open for business." By the next morning, in most places across the country, he would be proved correct. Outside of New York, Starbucks returned to nearly normal operations. In Oregon, the Barnes & Noble in Bend that had closed five hours early on Tuesday reopened. Around the nation, people who had left work early on Tuesday returned Wednesday morning at 9 a.m. But if the economy had reopened its doors, it was not exactly overrun with customers.
Russ Shelton, the co-owner of a General Motors dealership in Rochester Hills, Mich., had sent his employees home on Tuesday and closed early, having sold only two vehicles. On a normal day, he sells 12 to 20, he said.
By late Wednesday afternoon, the showroom had a fairly typical number of people walking through it. "Probably," Shelton said, "they just wanted to get away from the television." Again, he sold just two cars.
Many Americans said in interviews that they wanted to reduce their spending until they felt that they knew what the immediate effects of the crisis would be. "You don't want to spend money on things that seem to be less important when safety is a concern," said John Puchalla, an economist at Moody's Investors Service, a credit rating agency in New York. "You're just not sure what will happen next."
Hard on furniture
Stein of Steinmart said he expects the terrorist attacks to be especially hard on sales of fashion apparel and expensive home furnishings, not the sort of purchases in keeping with a nation in mourning. "It is clearly not business as normal in our stores," he said.
Even over-the-road truckers were behind schedule, says Dan England, chief executive of C.R. England Inc in Salt Lake City, which operates 2,500 tractor-trailers, two thirds of them driver-owned.
"We only accomplish 70 or 80 percent of what we want to do in a day, although that is improving," England said on Thursday. "The drivers want to stop and watch TV, and you can't blame them."
Economists are reluctant to speculate when Americans will return to old habits. The country has gone to war before and its citizens have died from terrorist attacks before, they noted, but not since the Civil War has the continental US been the site of such destruction.
As a result, the effect on the nation's psyche, and thus on its confidence and its economy, could be worse than previous shocks, economists said. But the earlier shocks at least provide a starting point for those trying to gauge the weeks ahead.
In the spring of 1995, after domestic terrorists bombed the federal building in Oklahoma City, a widely followed index of consumer confidence fell 3 percentage points in a month, to 89.8, although it rebounded the next month. The University of Michigan calculates the index from responses to a telephone survey of Americans in which it asks them their current feelings about the economy and their feelings about the next six months. Many analysts consider the survey a reliable predictor of consumer spending, which accounts for roughly two-thirds of the gross domestic product.
After Iraq invaded Kuwait in the summer of 1990, the fall in the index was more pronounced. It dropped 13 percentage points, to 76.4, and continued to fall into the mid-60s as the US prepared for war. The resulting uncertainty helped to send the economy into its last recession.
The parallels to today are striking. As was the case a decade ago, US leaders are openly discussing overseas attacks, and some of the world's richest oil regions could be involved. In addition, consumer confidence has already been dropping, as a long economic expansion seemed at its end.
Last week, the Michigan index fell to 83.6, its lowest level since 1993, reflecting the results of a survey done before Tuesday's attacks. Less than a year ago, the index stood at 107.6, near its record high.
Weaker outlook
Given all the new uncertainty, and the billions of dollars of profits and wages lost after the attacks, consumers are almost certain to pull back even further, at least in the near term, economists said. "Following the terrorist attack, we should expect an even weaker outlook," said Richard T. Curtin, the director of Michigan's consumer survey. "The possibility the economy will fall into an outright recession has grown substantially."
Still, economists cautioned, the long-term economic effects of a disaster can often appear to be much greater in its immediate aftermath than they actually become.
Over the last 25 years, Britain has been the site of many bombings, mostly carried out by the Irish Republican Army. But even the largest -- in train stations or crowded neighborhoods -- had only the smallest effects on the nation's overall economy.
"The actual impacts on confidence and activity were very short-lived and almost imperceptible," said Walker of Oxford Economics. "It is surprising how relatively quickly people started to travel on the Underground again and go to train stations again."
But none of the terrorist attacks in Britain killed anything like the number of people that this week's attacks did, Walker said. And Britain, which had experienced both World War II air attacks and regular terrorist incidents more recently, had less of a sense of peace than the US did before this week.
That sense of peace and stability, Puchalla of Moody's said, is one of the reasons Americans have been more willing than people in other countries to spend their income and go into debt.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique