Forum Archive Index - September 2001

["dsproul" <dsproul@corsairmarine.com>]

                Further on the US economy's immediate prospects , from The New York Times (abridged)

A Gradual Slowdown Suddenly Becomes a Wrenching Halt

By DAVID LEONHARDT and LOUIS UCHITELLE

The attacks that destroyed the World Trade Center towers and damaged the Pentagon brought the American 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 enacted a $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.

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.

Still, individual events, even enormously tragic ones, usually have only a temporary effect on major economies. Economists do not question whether the American 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.

It would be hard, however, to exaggerate what happened last week. For a while, American 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 United States, in the stores that remained open, many people behaved as they did at a Barnes & Noble bookstore in Bend, Ore. — 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, America 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.

"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.

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."

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Can't see it not being a merciless day on Wall Street (tonight, NZ time), and that tomorrow's NZ prices will back off even further than today.

Dave

 

 

 

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