US companies' fourth-quarter profit may decline as much as 15 percent, or potentially three times worse than expected, after the deadliest terrorist attacks in US history yesterday, said Chuck Hill, research director at Thomson Financial/First Call.
"In this environment, where we're hanging by a thread with consumer spending keeping us going, why, this might be enough to push us over the edge" into a recession, Hill said.
Analysts had forecast a 2.7 percent decline for the fourth quarter before the attacks, he said, and First Call had expected a decline of at least 5 percent. Now the odds are that the decline will be 10 percent to 15 percent, Hill said.
Airlines, hotels and retailers may be among the hardest-hit industries as people avoid flying and the attacks weaken consumer confidence, analysts said. Any retaliatory strikes may also push up oil prices, affecting everything from trucking companies to producers of basic materials like chemicals and paper.
"Shocks of this sort cause a deferral of business expenditure, retrenchment on the part of the consumer," said Byron Wien, director of investment strategy at Morgan Stanley Dean Witter & Co, the largest tenant in the World Trade Center, which collapsed after it was struck by hijacked planes yesterday.
Texas Instruments Inc, Hewlett-Packard Co, Best Buy Co, 7-Eleven Inc and scores of other companies shelved air travel plans after the attacks, which also struck the Pentagon. Almost nine of 10 corporate travel managers expect to curtail air travel in coming weeks, according to a survey by the Business Travel Coalition.
The economy grew 0.2 percent in the second quarter, according to a Commerce Department figure that may be revised. A recession is defined as two quarters of contraction.
US airlines, which last year brought in US$257 million a day in passenger revenue, have been grounded since yesterday. Even when flights resume, analysts expect travel to remain light. Some likened the situation to the period after the Gulf War in the early 1990s, when international travel fell 28 percent and the decline hastened the demise of Eastern Airlines Inc and Pan Am World Airways Inc.
Shares in European and Asian airlines reflect the concern.
British Airways Plc has dropped 21 percent since Monday. Midway Airlines Corp, which is operating under bankruptcy protection, ended all flights and fired 1,700 workers, saying it expects demand to plunge.
If history is any guide, consumer spending will also fall. A measure of US consumer confidence from the Conference Board fell to its lowest level in more than eight years after the Gulf War started in January 1991. Personal spending during that same month fell 0.4 percent.
"There will be a reduction in consumer spending," said Kurt Barnard, president of Barnard's Retail Trend Report. "Part of it is people watching the human tragedy unfolding on TV. That will make them feel guilty about buying anything."
Catalog retailer Lands' End Inc said call volume was 75 percent lower than normal yesterday and 60 percent lower today. On Amazon.com Inc's Internet site, the usual promotions for books and compact discs were replaced by a message about how to contribute to the American Red Cross Disaster Relief Fund.
Shipments of books and other items may be delayed by the grounding of flights, the company said.