Little things say a lot about a nation in crisis
Irwin Stelzer in the Sunday Times (London)
THE old song says "little things mean a lot". Translated into an economist's jargon, that means there are times when small anecdotes trump macroeconomic data. This may be one of those times. All data being published in the next few weeks relate to what in economic terms are prehistoric times - America's pre-September 11 era.
The trade deficit was down in August; unemployment was up; inflation was tame; the economy was slowing, although there were encouraging signs that the worst was over, as Alan Greenspan, Federal Reserve Board chairman, told Congress last week.
Even in ordinary times these looks in the rear-view mirror don't tell us much about the road ahead. To make a good guess at the future we need a peek at what has been going on in the new era - since the terrorist attack.
We know a few things. The already troubled airline industry is now so deep in the red that the government is preparing to bail it out. Insurers will sustain large losses, and eventually have to raise premiums to refresh their balance sheets. Media companies did the right thing and broadcast news on a 24-hour basis on most television stations, in the process surrendering millions, perhaps billions, in revenue by scrapping ads.
We also know what our eyes tell us. It's not a good time to be in the hotel business, as my wife and I noticed in the cavernous and ordinarily crowded lobby of the Mayflower hotel here in Washington. Eerily, we were the only two people in a vaulted, marble-floored foyer that stretches for an entire city block. Nor would one want to own restaurants just now. To cheer up a travel agent who has lost hundreds of thousands of dollars in bookings, we took her to lunch, and were virtually the only ones in a restaurant famous for being fully booked. But it's a good time to be selling mobile phones, which proved so valuable during the disruption that stores are jammed with new customers.
What we don't know is just how events will affect consumers, whose spending was keeping the economy from recession before September 11. Again, we do know something: Americans are stunned, mourning, angry, determined to see through the war our president has declared on terrorists and all those who support and shelter them. But we don't know how this will affect what consumers will do with the dollars that constitute almost 70% of the nation's GDP.
To find out, we must rely on anecdote, on early clues as to whether they will retrench or, the initial shock over, do what American consumers do best - spend. What follows hardly passes for a scientific survey. It is designed to see whether what is going on in the economy confirms the new forecasts that we are in for a sharp recession in the third and fourth quarters of this year, followed by a rebound - tepid or torrid, depending on which expert you favour - in 2002.
Let's start with a call to General Growth Properties, the Chicago-based owner of some 145 big malls around the country. Business was virtually non-existent on the day the planes hit the World Trade Center and the Pentagon, and for two days thereafter. No surprise there. Then, on the Friday, things picked up. Since then, sales in malls around the country have been running at about the same levels as last year, with only those in urban areas showing a bit of weakness. The one exception to the surprisingly favourable performance is Washington DC, where sales at two of its big malls are "a little worse" than last year, says Wally Brewster, a spokesman for their owner.
He attributes the quick and surprising rebound to the fact that people just wanted to get out and see their friends and neighbours, and shopping malls have become community meeting places, as anyone who has visited Bluewater in Kent can attest. In Washington, for example, the Pentagon mall encourages the use of its space for early-morning, pre-opening jogs by oldsters eager for exercise but loath to brave the famous Washington heat and humidity in summer, or the nasty weather in winter.
That need for community may explain two other interesting developments. Movie admissions on the Saturday after the disaster were at near-record levels. And when major- league baseball resumed last week, the Los Angeles Dodgers sold every seat in their huge stadium, even though their opponents were a second-level team. In part, fans wanted relief from the horrific images on television; in part, they wanted to come together to sing the national anthem; and in part, they wanted to return to some semblance of normality.
Indeed, although the world has changed, much that goes on in America has not. General Motors reports it still plans to hit its profit targets, which may mean that car sales have not slowed to a crawl. More important, my telephone survey of local estate agents reveals that buyers who committed to house purchases before the terrorist attack are not backing out.
Sales of multi-million-dollar homes had softened before the attack, and remain soft. But the main problem estate agents still face in other price bands is lack of inventory. One said she had three buyers for every house.
The commercial-property market, at least in Washington, also remains tight. Sandy Michaels, an associate vice-president of Charles E Smith, a leading local property company, tells me no concessions are being offered. Law firms, which make up a good part of commercial-property buyers here, are not cutting their demand for space, even though the dotcom collapse and the drop in merger activity have hit the business of several.
Of course, one has to discount a bit the optimistic reports of estate agents and others. There is a dark side. This is a town whose airport remains closed, perhaps forever, since its flight paths take planes within a mile of the White House, the Pentagon and other sites that are now considered vulnerable.
This closure makes the trip here harder for regular commuters from New York, Boston, Atlanta and other cities. Some now drive; some take the train; some fly to far-out Dulles and Baltimore International airports and taxi over. But some are staying at home, developing their telecommuting and teleconferencing skills, driving up the share prices of companies in the videoconferencing business but creating a problem for a town that depends heavily on tourism and convention business.
My own view is that these and a host of adjustments will play out against the stimulative background of looser monetary policy, and much looser fiscal policy. The government is once again doing what it does best: spending. Freed by the crisis to ignore budgetary constraints, it has already handed New York $20 billion for immediate relief; Mayor Rudy Giuliani, who has covered himself with glory in these terrible days, says that is merely a downpayment on the much larger sums that will be needed for rebuilding. The administration and Congress will hand the airlines several billions, probably by the time you read this. Defence spending will surely and quite sensibly rise and there will be tax relief for affected industries and individuals.
It will take months before these billions hit the economy, adding to the stimulative effect of the $300 per person tax refunds. Until then, the slowdown that started before September 11 may accelerate. However, when the money starts to flow, perhaps early next year, it is not unreasonable to expect a sharp recovery - unless, of course, another attack or attacks completely unnerve consumers.
Those seeking a more certain guide to the future had best heed Greenspan's words: "Nobody has the capacity to fathom fully how the tragedy of September 11 will play out."
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