The terrorist attack on the US may mean the economy will shrink in the third quarter for the first time in more than eight years, elevating the possibility of the first recession in a decade.
Disruptions to business and the shaken confidence of consumers because of yesterday's attack "spells a lot of trouble for the US economy," said David Littman, senior economist at Comerica Bank, in Detroit. The current quarter "will probably show no growth to a contraction."
That may lead the Federal Reserve and other central banks to reduce interest rates to bolster confidence. The economy expanded at a 0.2 percent annual rate from April through June, the weakest quarter in eight years. With consumer spending accounting for two-thirds of gross domestic product, a sustained interruption of business may prevent a rebound, analysts said.
Walt Disney Co, which closed its theme parks, pledged to reopen them today. Airlines were shut down at least until midday, after all flights were grounded yesterday.
"The American economy will be open for business," President George W. Bush said in a nationally televised address.
That wasn't the case yesterday. Retail outlets from Starbucks Corp to Gap Inc closed across the country. Mall of America in Bloomington, Minnesota, shut the doors to its more than 500 stores and 12,000 workers.
"We have closed stores through-out the country, as appropriate, in major markets such as New York, Boston, Chicago and San Francisco," said Margery Myers, spokeswoman for Talbots Inc., a Hingham, Massachusetts-based retailer of clothing for women and children. The company has 768 stores.
Even Major League Baseball canceled its games last night.
* The US economy expanded at a 0.2 percent annual rate from April through June, the weakest quarter in eight years.
* The last time the US economy contracted was in the first quarter of 1993, when GDP shrank by 0.1 percent.
Stocks will probably decline once trading in the US resumes.
In Asia and Europe, shares slumped following the attack. Japan's Nikkei 225 stock average fell below 10,000 for the first time since Aug. 1, 1984. The UK's FTSE 100 Index plummeted 5.7 percent and France's CAC 40 lost 7.4 percent, the biggest declines since the market crash of October 1987.
"Whenever you've had these things before, you've had big drops" in stocks, said Roger Kubarych, chief US economist for HVP Group in New York. "This will put a lot of pressure on the Fed to lower rates."
The last time the US economy contracted was in the first quarter of 1993, when GDP shrank by 0.1 percent. "The chances of a real recession are many times higher than they were" before the attack, Kubarych said. "I would say that the probability is 50-50."
The economy has already had its weakest 12 months of growth since the 1990-1991 recession. Fed policy makers have reduced interest rates seven times this year to prevent the slowdown from becoming worse.
Economists cautioned that even a couple days of disruption could lead to a contraction. "At least for a couple of more days a substantial amount of economic activity will remain paralyzed," said Thomas Carpenter, chief economist at ASB Capital Management. "It's clear that when you send everybody in the country home and you freeze all the airplanes, airlines will remain grounded for days, that will interrupt normal work activity."
A bigger risk is that consumer confidence will plunge. A measure of consumer confidence from the Conference Board fell to its lowest level in more than eight years after the start of the Persian Gulf War in January 1991. Confidence is regarded as an indicator of spending. Personal spending during that same month fell 0.4 percent.
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