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A year after Sept. 11, attacks' economic impact lingers, but effect is
By Adam Geller, Associated Press
NEW YORK — A year ago, planted in front of televisions, numbed by endless images of the World Trade Center's destruction, consumers froze -- and briefly forgot to consume.
Investors stopped investing, and dumped stock. Travelers stopped traveling, at least by plane. Scores of companies slashed thousands of jobs, and economists warned that the combined effects could snowball.
But a year after terrorists attacked the trade center, the Pentagon -- and by extension, the economy -- the impact has not proven to be nearly as deep or as lasting as was feared.
The economic consequences of Sept. 11 still linger, certainly. But the toll has proved disparate, inflicting the heaviest damage on sectors such as travel and tourism while leaving others unscathed. And it turns out events before and after have played a far larger role in shaping the economy than the attacks.
"I would say the impact has been less than we had initially thought in terms of economic contraction," said Gus Faucher, a senior economist with Economy.com, a research firm in West Chester, Pa. "It's a contributing factor to the weak economy, but it's not the primary factor."
Sizing up the impact of the attacks is complicated because the economy was already in a recession before last September. In the months since, it has been buffeted by other crises, including the collapse of Enron and a host of other corporate scandals, severe problems in the telecommunications industry, and the drop-off in the stock market.
"Economically, the stock market setback may have had more of an impact than the terrorist attacks because it shaved some $7 trillion from our wealth," said Sung Won Sohn, an economist with Wells Fargo and Co.
Some of the expectations that shaped economic forecasts immediately after the attacks, particularly fears of a long war in Afghanistan with heavy American casualties, did not come to pass, said Ross DeVol, director of regional studies for the Millken Institute in Santa Barbara, Calif.
The think tank early this year estimated the attacks would result in the elimination of 1.6 million jobs nationwide. But DeVol says now the number will probably be 1.2 million or less, most concentrated in industries like air travel and tourism, or in New York City.
The uneven impact means that assessments of the damage vary by vantage point.
"The attacks certainly accelerated the action," said Terry Mercer, a technical illustrator for Boeing Corp., who's been unable to find work since the aerospace giant eliminated his job and 5,000 others from its Wichita, Kan., operations. "But everybody's feeling was that it (some cuts) was going to be coming anyway. We didn't have a lot of work even before the attacks."
The landscape looks very different to home builder Bob Simmons of McLean, Va., who said he was prepared for the worst last fall -- but never had time to stop and wait for it.
"For me, it's almost like a recap of last August except we have about 10 percent more sales," said Simmons, who builds homes in the suburbs of Washington, D.C.
Economists say the healthy housing market shows how a variety of factors helped mitigate the damage of Sept. 11.
Consumers, told one of the best things they could for their nation was to shop, did just that. Record low interest rates kept families buying homes, and refinancing mortgages put cash in their pockets for other purchases. Detroit's zero-percent financing for new cars late last year captured consumers' attention. Government spending pumped additional money into the economy.
"Who knows what the psychology was, but (the attack) was not as big a blow as we were expecting," said Economy.com's Faucher. "People still went out to dinner, they still went out to the mall to buy things and things just held up better than expected."
The following business sectors continue to show lasting impact of the attacks:
Travel and Tourism
Americans have gingerly returned to the skies. But the business of flight remains in a severe downturn.
The damage has been quite evident in recent weeks as US Airways sought bankruptcy protection, American Airlines announced restructuring and cutbacks and United Airlines warned of a possible bankruptcy filing this fall unless its situation improves.
The number of passengers on domestic and international flights, which had plummeted by a third last September, was down 11.2 percent this year through July, according to the Airline Transport Association, an industry group.
Airlines have partially restored their schedules and called back some of the workers furloughed after the attacks. America West Airlines, which eliminated 2,000 employees after Sept. 11, said it has called back all 1,500 workers still available. But at US Airways, which cut 11,100 jobs, just 1,900 employees have been called back.
Job cuts in aerospace appear even more permanent. Boeing, which has cut nearly 30,000 jobs since Sept. 11, was criticized for saying the it may never rehire those workers.
The downturn has hit hotels, restaurants and other tourism businesses hard. At the Grand Canyon, for example, the number of visitors is down 4.2 percent this year, through June. But that figure is tempered by increased car-based travel by Americans. Visits by overseas tourists are down by nearly 40 percent at one of the park's entrances.
Insurers will pay out $40.2 billion in claims for the damage caused by the attacks. But the attacks' impact will be felt well after the checks are mailed.
"Insurers are much more cautious about who they're willing to underwrite and how much coverage they're willing to offer, if at all, and in almost every case the cost is higher," said Robert Hartwig, economist for the Insurance Information Institute, an industry group.
Prices for many types of insurance were already rising before the attacks. But costs are now up an average of 25 percent for business coverage such as commercial property insurance and worker's compensation, in large part to account for the previously unforeseen risk of terrorism, Hartwig said.
Security and Defense
In the weeks immediately after the attacks, Congress approved $40 billion in emergency spending -- about $27 billion of it for defense and domestic security. Businesses also ratcheted up their self-protection efforts, and did so again during the anthrax scare that followed.
But while the immediate crises have faded, and some private security efforts have been scaled back, increased spending on defense and security promises to be one of the most long-lasting effects.
Economists point out that while that spending will be a boon for certain industries, it also drains away money that could have been spent on other needs.
In a sign of the cost, Congress approved a $28.9 anti-terrorism bill in July that includes $14.5 billion for the Defense Department and intelligence and $6.7 billion for domestic security.
In the aviation sector, spending on security products -- which had been rising about 13 percent a year before the attacks -- is likely to surge 27 percent a year through 2005, according to The Freedonia Group, a Cleveland-based research firm.
Most of that money will be provided by government. But business outlays for security will increase significantly, specifically because of concerns raised by the attacks, said Paul Bailin, a security analyst for Freedonia.
The attacks should boost the private security industry, which had been growing about 6.5 percent annually, to a 7.5 percent annual growth rate over the next five years, from $45 billion last year to about $65 billion in 2006, Bailin said.
Construction and Real Estate
The market for new homes remains very healthy thanks to low interest rates. But the attacks appear to have dampened demand for office space, particularly in high-profile towers, a downturn that was already under way as companies cut back on investment.
Spending on new office construction was down 32 percent for the year through June and the value of new hotel construction was down 36 percent, according to the Dodge division of McGraw-Hill Construction, which tracks the industry.
"Sept. 11 perhaps did worsen an already deteriorating situation, but it, in and of itself, did not cause it," McGraw-Hill economist Bob Murray said.
The number of out-of-work Americans began rising well before last September, but the attacks led employers to cut even more jobs. The unemployment rate, which bottomed out at 3.9 percent late in 2000, reached 4.9 percent by last September. In the month after the attack, it jumped to 5.4 percent and has since climbed to 5.9 percent, as of July.
That is despite the fact that some employers in industries that bore the brunt of layoffs, notably airlines and hotels, have since called some of their employees back to work.
Economists say it is difficult to determine precisely how many of the job cuts can be blamed on the attacks. But, in a report issued in February, the Department of Labor said the attacks were either directly or indirectly cited as the cause for 408 mass layoffs in the final quarter of last year sending home 114,711 workers.
While 33 states reported layoffs tied to the attacks, 56 percent of the
jobs cut were in just five states -- California, Nevada, Illinois, New York