NEW YORK – In addition to the horror and personal tragedies they caused, the terrorist acts of September 11 inevitably have had an impact on the American and global economies. Stock prices fell in Europe and Asia, and in America when markets reopened, but rebounded later. The value of the dollar briefly declined, and oil prices spiked before settling back. The question that executives and economists wrestled with, of course, was longer-term impacts the attacks would have on the American economy.
Consumer confidence was already weakening. A survey by the Conference Board taken during the 10 days prior to the attack found that Americans were less optimistic about the economy than any time since the last recession. Declining confidence, resulting from rising unemployment and falling stock-market prices, would have led to less consumer spending even without the shock of the terrorist attack, economists note. The events of September 11 are likely to cause an even more abrupt cutback in spending, which accounts for a large portion of economic activity.
Wharton finance professor Jeremy Siegel, with several of his colleagues, analyzed the economic impact of the attacks immediately after they occurred. In addition to the physical and psychological damage they caused, the terrorists “inflicted body blows on a weak world economy that already teeters on the brink of a recession,” Siegel noted.
One of the most dramatic impacts may well be on consumer confidence. “For much of this year, strong consumer spending — which has persisted despite layoffs and rising unemployment — has buoyed the U.S. economy,” the Wharton group noted. Consumer spending accounts for about two-thirds of gross domestic product, and until now has played a large role in preventing a slide into recession. If declining confidence leads to lower spending, the result could be a major setback for the economy.
For similar reasons, travel and tourism are likely to be affected. The travel industry produces annual revenues of more than $580 billion; even a small contraction in travel spending could have a serious impact on a number of industries. The airlines, in trouble before the attack, suffered further losses when their planes were grounded for several days and are likely to see reduced ticket sales for many months as passengers adjust to tightened security and longer waiting times at airports.
The insurance industry is facing losses in the billions, noted Prof. Jerry Wind, not only for the huge losses of life and property, but for claims filed by companies whose businesses were disrupted. Wind says that the attack will lead to a much stronger emphasis on the nation’s intelligence activities and on security. Companies in the defense and security sector will see a sharp increase in demand, but this will have a negligible impact on the technology sector, of which these companies are a small part.
Prof. Siegel notes that the long-term impact of the September 11 attacks will be far more serious if they are followed by further assaults. “Terrorists like to keep terror alive,” he said. “If the terrorist threat continues, it will have an impact for many years. But if the threat of terrorism fades, markets will return to normal. The U.S. has prospered during periods of anxiety, such as the 1950s and 1960s when there was a constant threat of nuclear war.” (aa)
