Economists marvel at resilience after 9/11

Effect on consumers minor, group recalls

September 12, 2006|By Marilyn Geewax | Marilyn Geewax,Cox News Service

BOSTON -- When terrorists slammed planes into the World Trade Center in New York five years ago, the National Association for Business Economics was there, holding its annual convention.

Yesterday, when the same group met here, its members marveled at the resilience that the U.S. economy has demonstrated since that blue-sky morning when they ran outside into a hard rain of debris from the flaming tower above.

U.S. consumers "got over it more quickly than I thought" at the time they would, said David Wyss, chief economist for Standard & Poor's in New York. "Americans are pretty good about getting on with life."

That the country would shake off the economic, if not psychological, effects of the attacks within weeks was not clear on Sept. 12, 2001. The stock market was shut down, planes were grounded and restaurant owners faced empty tables because stunned Americans couldn't pull themselves away from their televisions.

"I was concerned about the next couple of quarters," said Stuart Hoffman, NABE president and chief economist for PNC Financial Services Group in Pittsburgh.

Hoffman feared that consumer spending would be depressed long enough to extend the mild recession of 2001 into a long downturn.

But the worst-case scenarios never materialized.

Within days, stock trading resumed, planes took off and consumers started spending. Americans' willingness to make big-ticket purchases soared that October when the Big Three U.S. auto makers decided to shrink inventories by offering interest-free financing. And even as people canceled travel plans, they rushed out to buy bigger televisions to better enjoy their time at home, Wyss said.

Economists here also gave credit to the Federal Reserve for moving quickly to cut interest rates and assure market liquidity. "It was the Fed's finest hour," said David Kotok, chairman of Cumberland Advisors Inc. in Vineland, N.J.

Diane Swonk, chief economist with Mesirow Financial in Evanston, Ill., said that after she fled that fateful 2001 meeting, her confidence returned quickly. She had done research on the rebound of South Florida after Hurricane Andrew in 1993 and knew that "we're a wealthy nation - we'll rebuild."

But she said Sept. 11 has had one lingering negative effect: higher fuel prices.

In the aftermath of the attacks, the United States invaded Iraq. Swonk said continuing violence in that oil-producing region has created "a fear premium" that has pushed energy prices much higher. Just before the attacks, oil was trading for about $18 a barrel. In recent months, it has been about $70.

"The economy would be better today if oil were only $40 a barrel," she said.

Those high oil prices are weighing down the economy enough to hold back gross domestic product, according to the group's September outlook, released yesterday.

The survey of 50 top economists predicted the economy will grow by 2.6 percent in the second half of 2006. Last year, GDP grew at a healthier rate of 3.1 percent. For next year, the economists expect growth of 2.8 percent.

Like most Americans, the NABE economists are optimists. Only one in four of them saw a chance that a recession would start in 2007.

But perhaps more than most, they recognize the importance of luck in determining fortunes. Not a single NABE member was killed on Sept. 11, even though they were meeting at the base of the World Trade Center as the first plane hit. They ran, turned and watched the second plane hit. Many lost friends to the flames.

At 8:46 a.m., the time of that first attack, the group took a long pause yesterday. In silence, they remembered.

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