NCPA - National Center for Policy Analysis

Terrorist Tragedies Confuse U.S. Economic Outlook

September 12, 2001

The terrorist attacks on New York's World Trade Center and the Pentagon in Washington will surely affect the U.S. economy -- and probably the global economy as well. But economists are still faced with great uncertainties regarding the future scope of that impact. Their confusion is exacerbated by the temporary shutdown of U.S. financial markets.

Nevertheless, here are some of their earliest observations:

  • Even prior to the attacks, consumer confidence had fallen from a high of 142.5 last September to around 114.3 by last count -- and is likely to fall still further in response to the new uncertainties.
  • Nariman Behravesh, chief economist at DRI-WEFA anticipates the additional loss of confidence will discourage consumer spending to the extent of a half-point reduction in the domestic economic growth -- which would push the exceedingly weak 0.2 percent annual growth rate registered in the April-June quarter into negative territory.
  • The Federal Reserve system announced yesterday that its rarely used discount window "is available to meet liquidity needs" -- similar to an announcement which followed the stock market crash of October 1987, which buttressed investor confidence and headed off panic.
  • Several economists have expressed the opinion that preserving the budget surplus is likely to fade as an issue, as the government is faced with the task of repairing the terrorist damage and increasing security.

The prospect and costs of U.S. military action to avenge yesterday's attacks are unclear, since the enemy has not been identified for certain.

So at least for the present, the country's economic future is clouded by uncertainty. And adding to that uncertainty is the reluctance of many economists to speak about the economy in the midst of such tragedy.

"I feel like there is so much human tragedy, you do not want to be thinking rationally or analytically about this," says James Glassman, chief domestic economist for J.P. Morgan Chase. "But we do know that soon we are going to have to think about the economy," he adds.

Sources: George Hager, "Attacks Could Tip U.S. into Recession," USA Today; and Louis Uchitelle, "A Tragedy Adds More Confusion to the Outlook for U.S. Economy," New York Times; both September 12, 2001.

For USA Today text


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