World economy threatened by attack
Scale is still unknown, but terror strike may exact a price
By John W. Schoen
MSNBC
Sept. 11 — Corporate America, like the rest of nation, recoiled in horror Tuesday following the worst terrorist attacks on U.S. soil. But beyond the obvious and horrendous human toll, the full economic impact is unknowable. Still, Tuesday’s devastating attacks on the World Trade Center in New York and the Pentagon in Washington, heightened concern that the world’s already weakening economy could face an even steeper downturn.
MUCH of the impact on business and the economy will depend on what happens next, particularly with expectations that the U.S. will launch a military response to the attack once it determines responsibility.
“It’s similar psychologically to what we saw with the Gulf War,” said Gary Thayer, chief economist at A.G. Edwards. “How the [Bush] administration deals with it — how quickly we’re able to get concrete evidence and develop concrete plans — will effect how quickly confidence can be supported.”
With all air traffic suspended, and stunned workers monitoring events on television, many U.S. businesses ground to a halt. Those who continued to work faced communications blackouts, as telecommunications networks remained open but were clogged with calls.
Transportation into New York City was halted, with tunnels and bridges into the city closed to normal traffic. Most communication in and out of lower Manhattan was impossible.
Many businesses across the country closed soon after the attack, which came at the tail end of the morning rush hour, and sent employees home for the day. General Motors said it shut down its headquarters offices and manufacturing plants in Linden, N.J., Wilmington Del., and Baltimore, Md. Ford Motor Company and Daimler Chrysler also shut down their headquarters.
To try to restore calm to the waters, the Federal Reserve said Tuesday that it was open and operating and that its discount window will provide liquidity to financial markets as needed. The move hearkened back to a similar statement made to calm the markets after the stock market crash of 1987.
CONFIDENCE SHAKEN
And as the shock of Tuesday’s attack wears off, analysts say the most immediate impact will be a loss of confidence, particularly from consumers. Since a sharp pullback in outlays by businesses late last year, spending by consumers has gotten most of the credit for keeping the U.S. economy going.
But by most accounts, the economy was already teetering on the brink of recession before the attack. The latest read on the second-quarter U.S. gross domestic product showed a meager rise of 0.2 percent, which was revised down from an originally reported 0.7 percent increase. With the final report due out later this month, that measure could be revised into a negative number.
Now, economists fear that uncertainty and fear surrounding Tuesday’s attack will force consumers to cancel spending plans and accelerated the ongoing slowdown. And with few signs of a recovery in business spending, uncertainty surrounding the attack — and the likely U.S. response — will weigh on business leaders as well, according to Srinivas Thiruvadanthai, Director of Research at the Jerome Levy Forecasting Center.
“All businesses make decisions in uncertainty,” he said. “But the likelihood increases in this kind of environment that people will hold back.”
OIL PRICE SURGE
The terror attack also raises the specter of a surge in oil prices, just as the world’s energy markets have begun to stabilize following last year’s price spike.
Industries from airlines to plastics producers saw their profits wiped out as oil prices peaked over $30 a barrel. Now, oil analysts fear the impact of another surge in prices.
“Forty to $45 a barrel oil would be just devastating,” said Bill O’Grady, an oil analyst at A.G. Edwards.
Oil futures soared Tuesday on worries that further attacks — or the widely expected U.S. retaliation — could interrupt oil supplies. U.S. companies unable to trade on the New York Mercantile Exchange, which closed after the attacks, had funneled their purchases through London’s International Petroleum Exchange.
London Brent Blend futures hit a peak of $31.05 a barrel, the highest level since December last year, before closing at $29.06, up $1.61 or nearly six percent on the day.
Leaders of the Organization of the Petroleum Exporting Countries sought to calm those fears. OPEC Secretary General Ali Rodriguez said the Arab-dominated cartel would ensure world oil supplies and price stability.
“OPEC member countries are committed to their promises to guarantee sufficient oil supplies and their policy of strengthening market stability,” Rodriguez said after the attacks. “Furthermore OPEC’s members are prepared to use their spare capacity, if deemed necessary, to achieve these goals.”
Rodriguez said OPEC countries had substantial spare production capacity and were prepared to use it in order to achieve their goals.
Though the U.S. economy is widely diversified, the impact will fall disproportionately on some industries, say analysts. Airlines will likely bear increased security costs and loss of revenues from travelers too fearful to fly. Insurance carriers face incalculable losses from the physical damage incurred in the attack.
The financial services industry sustained the most visible losses, as the destruction of both towers of the World Trade Center struck at the heart of the New York financial district. Offices of some of the largest global financial services companies were evacuated, and the fate of many of those in lower Manhattan remained unknown as the day wore on. Those firms with offices in the towers include Morgan Stanley Dean Witter, Switzerland’s Credit Suisse Group and Germany’s Commerzbank, Deutsche Bank AG , Bank of America Corp., Cantor Fitzgerald and market data firm Thomson Financial.
U.S. financial markets were closed and will remain closed Wednesday, exchange officials said.
And until the source of the attack is known, it’s unlikely that confidence would be restored quickly, according to Chuck Hill, Director of Research at First Call and a former U.S. naval intelligence officer.
“What worries me the most is whether this is the end or whether tomorrow morning we get hit again,” he said. “If these guys really wanted to create panic and disillusionment amongst the American public, they would have figured out that it would be smart to save a few of their bullets for tomorrow.”
msnbc.com
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RR: Have a safe trip.
Regards,
Scott |
