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11.09.2001, 22:56

Attacks could hit economy

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Attacks could hit economy

Terrorism at key U.S. targets could put already shaky economy at risk

By Staff Writer Mark Gongloff
September 11, 2001: 3:26 p.m. ET>

NEW YORK (CNNfn) - The terrorist attacks Tuesday on New York and Washington are certain to hurt the already sluggish U.S. economy and stock markets in coming days, but the outlook over the long term is less clear.

"This terrible tragedy is certain to severely dampen consumer confidence and hence have the possibility of shutting down the consumer," said Anthony Chan, chief economist with Banc One Investment Advisors.

Both towers of the World Trade Center in New York burning Tuesday morning. Both buildings later collapsed.

"The extent of this negative impact will depend on whether the federal government is able to resolve who is responsible and whether U.S. officials can find the individuals responsible for these actions -- and whether we can add some certainty that this will not happen again."

Two airplanes crashed into the World Trade Center Tuesday morning -- causing both towers, the tallest buildings in the city, to collapse. A plane crash also destroyed a part of the Pentagon outside Washington.

There were no estimates of casualties Tuesday afternoon, but it's almost certain that thousands of people were hurt or killed in the attacks, the worst acts of terrorism in U.S. history.

The New York Stock Exchange, the American Stock Exchange and the Nasdaq Stock Market did not open Tuesday and said that after consulting with the Securities and Exchange Commission, would remain closed Wednesday. The exchanges added that, after further consultation with the SEC, they will announce Wednesday when U.S. stock markets would reopen.

The economy has been in a year-long slowdown but thus far has avoided a recession, commonly defined as two consecutive quarters of decline in the gross domestic product, the total output of goods and services in the United States.

"This may be what throws us into recession," said Maureen Allyn, chief economist with Zurich Scudder Investments.

The Federal Reserve has cut interest rates seven times this year in a bid to keep consumers spending and avoid a downturn, and the central bank said Tuesday it was ready to provide funds to the nation's banks after the attacks.

Last week's report of a higher-than-expected unemployment rate of 4.9 percent in August had already heightened recession fears on Wall Street that consumers, afraid for their jobs, would cut back on spending.

Consumer spending, which fuels two-thirds of the U.S. economy, has held up well despite the slowdown in growth and has been credited with helping prevent a recession. Tuesday's attacks could change that.

"The fact that U.S. officials cannot rule out further attacks will keep consumers here and abroad in a deeply uncertain state," said Banc One's Anthony Chan.

The airline and travel industries, for example, will almost certainly suffer an immediate impact from the attacks. The destruction of the World Trade Center and the severe damage to the surrounding area could also put a damper on financial activity in the United States for days, if not weeks.

"It is unclear how much financial infrastructure has been damaged," said Sung Won Sohn, chief economist at Wells Fargo & Co."At least temporarily, the financial system could be frozen, further damaging the economy."

U.S. stock markets likely to suffer

U.S. stock futures plunged after the first airplane hit the World Trade Center in New York Tuesday morning and trading was halted. U.S. stocks are likely to fall when trading finally resumes, as they did around the world Tuesday.

"There's been no shortage of negative news lately, and this event is likely to further depress the markets," said Alan Ackerman, market strategist at Fahnestock & Co.

The result is that U.S. investors are likely to flee to safe havens such as Treasury bonds and gold, as investors did overseas Tuesday. Oil and gold prices jumped and stocks around the world fell after the attacks, hitting already shaky global economies. The U.S. dollar fell against the euro and the yen.

"This attack is clearly visible all over the world on television. Consequently, world equity markets are in turmoil," Ackerman said."The uncertainty created by the attacks are likely to bring about more uncertainty abroad."

"The impact on the U.S. itself appears to be worse than that of Pearl Harbor," he added.

But Americans could also react to the incidents as they reacted to the Japanese attack on Pearl Harbor, on Dec. 7, 1941. That attack served to unify the country and rouse public sentiment for U.S. entry into World War II.

"After the attack on Pearl Harbor, the New York stock market fell 5 percent over two days," Carl Weinberg and Ian Shepherdson, economists with High Frequency Economics Ltd., said in a research note."As the United States mobilized and expressed its resolve in the ensuing days, the stock market came back."

Quelle: http://www.cnnfn.com[/b]

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