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.
PHOTO: AP
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.
Sales had already been weakening. In a report yesterday, senior economists at Pricewaterhouse-Coopers LLP forecast the worst holiday season for retailers since the 1991 recession. They said core retail sales, which exclude autos and gasoline, would increase 2.5 percent in the fourth-quarter buying season, compared with 4.5 percent a year earlier.
The attacks came "at the worst possible time for the economy," First Call's Hill said, adding that the chances have diminished for a recovery as early as the first quarter.
First Call, a Boston-based research firm, tracks analysts' estimates. Analysts had forecast a profit increase of 8.1 percent for the first quarter, and Hill said that figure is also in doubt after the attacks. He said it's too early to give any estimate.
"For airlines and hotels and so forth, we're likely to get some cuts in estimates over the next week or so, but it may take a month before analysts start cutting things like retailing, homebuilding and autos," Hill said.
Some analysts are relatively optimistic. Robert Blake, a senior economist at Royal Bank of Scotland in New York, said there may be "depressed activity levels in September, but we expect things to bounce back in the following months."
A few industries may be safe. Defense stocks such as Lockheed Martin Corp and Raytheon Co, for instance, may benefit from spending increases after the attacks. Companies that make security products such as Tyco International Ltd. could also get a boost.
While Hill and other analysts said oil prices may eventually rise, they haven't soared yet. Brent crude oil for October settlement fell US$1.04, or 3.6 percent, to US$28.02 a barrel on the International Petroleum Exchange today in London after OPEC pledged to keep supplies flowing. The price had risen 5.9 percent to US$29.06 on Wednesday.
NO HUMAN ERROR: After the incident, the Coast Guard Administration said it would obtain uncrewed aerial vehicles and vessels to boost its detection capacity Authorities would improve border control to prevent unlawful entry into Taiwan’s waters and safeguard national security, the Mainland Affairs Council (MAC) said yesterday after a Chinese man reached the nation’s coast on an inflatable boat, saying he “defected to freedom.” The man was found on a rubber boat when he was about to set foot on Taiwan at the estuary of Houkeng River (後坑溪) near Taiping Borough (太平) in New Taipei City’s Linkou District (林口), authorities said. The Coast Guard Administration’s (CGA) northern branch said it received a report at 6:30am yesterday morning from the New Taipei City Fire Department about a
IN BEIJING’S FAVOR: A China Coast Guard spokesperson said that the Chinese maritime police would continue to carry out law enforcement activities in waters it claims The Philippines withdrew its coast guard vessel from a South China Sea shoal that has recently been at the center of tensions with Beijing. BRP Teresa Magbanua “was compelled to return to port” from Sabina Shoal (Xianbin Shoal, 仙濱暗沙) due to bad weather, depleted supplies and the need to evacuate personnel requiring medical care, the Philippine Coast Guard (PCG) spokesman Jay Tarriela said yesterday in a post on X. The Philippine vessel “will be in tiptop shape to resume her mission” after it has been resupplied and repaired, Philippine Executive Secretary Lucas Bersamin, who heads the nation’s maritime council, said
CHINA POLICY: At the seventh US-EU Dialogue on China, the two sides issued strong support for Taiwan and condemned China’s actions in the South China Sea The US and EU issued a joint statement on Wednesday supporting Taiwan’s international participation, notably omitting the “one China” policy in a departure from previous similar statements, following high-level talks on China and the Indo-Pacific region. The statement also urged China to show restraint in the Taiwan Strait. US Deputy Secretary of State Kurt Campbell and European External Action Service Secretary-General Stefano Sannino cochaired the seventh US-EU Dialogue on China and the sixth US-EU Indo-Pacific Consultations from Monday to Tuesday. Since the Indo-Pacific consultations were launched in 2021, references to the “one China” policy have appeared in every statement apart from the
More than 500 people on Saturday marched in New York in support of Taiwan’s entry to the UN, significantly more people than previous years. The march, coinciding with the ongoing 79th session of the UN General Assembly, comes close on the heels of growing international discourse regarding the meaning of UN Resolution 2758. Resolution 2758, adopted by the UN General Assembly in 1971, recognizes the People’s Republic of China (PRC) as the “only lawful representative of China.” It resulted in the Republic of China (ROC) losing its seat at the UN to the PRC. Taiwan has since been excluded from