Attacks could push teetering economy into recession

Martin Crutsinger

Wednesday, Sept. 12, 2001 | 9:51 a.m.

Markets still closed

U.S. financial markets remained closed for a second session today as New Yo' rk's financial district struggled to recover from a terrorist attack that devastated the World Trade Center.

The New York Stock Exchange, American Stock Exchange and Nasdaq Stock Market were expected to decide later in the day when trading would resume. Securities Exchange Commission chairman Harvey Pitt told CBS' the Early Show that today would be a day of assessment, but that he believed the markets would be ready to open Thursday.

European stocks prices fluctuated in volatile trading today after Asian shares plunged on fears the terrorist attacks in the United States could deal a severe blow to the ailing U.S. and Japanese economies.

WASHINGTON -- The terror attacks in the nation's business and government capitals may push the teetering economy into recession, analysts suggested. The Federal Reserve said it stood ready to pump extra money into the economy if needed to try to avert such a development.

The Fed's promise to supply additional money to the banking system was similar to a pledge it issued on the morning after the October 1987 stock market crash. That action, only two months into Alan Greenspan's tenure as chairman, was credited with keeping the economy out of recession.

Private analysts, however, said the Fed's magic of lower interest rates and ample supplies of cash may not be enough to overcome Tuesday's series of attacks. They came as the economy already was struggling and consumer confidence was faltering.

"The economy has been on a high-wire act straddling between a recession and anemic growth. Now the terrorists have cut the wire underneath our feet," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "The United States and the rest of the world are likely to experience a full-blown recession now."

Bush administration officials tried to bolster confidence. In a statement, the President's Working Group on Financial Markets said officials had "every confidence" stock trading will resume "as soon as it is both appropriate and practical." This group of Treasury and Federal Reserve officials, along with market regulators, coordinates government responses during market crises.

Treasury Secretary Paul O'Neill, in Tokyo on Tuesday on the last stop of a weeklong Asian tour, said in a statement that "our nation's financial markets are strong and resilient."

The concern among economists is that the attacks will cause consumers to cut back further on their spending, which accounts for two-thirds of the nation's economic activity.

Even before the attacks, signs of trouble were evident as Americans grew more worried about their jobs with each fresh round of layoff announcements.

The government had reported last Friday that the unemployment rate shot up to 4.9 percent in August as job losses in manufacturing climbed above 1 million.

The overall economy grew by just 0.2 percent in the April-June quarter, the poorest showing in eight years. Before the terrorist attacks, many analysts had been forecasting a rebound to around 1.5 percent growth in the gross domestic product for the current quarter, helped by seven interest rate cuts from the Fed and nearly $40 billion in tax rebate money being mailed to Americans.

But economists said the terror attacks, in addition to hurting consumer confidence, could disrupt the economy in a variety of ways, including severely curtailing air travel, which especially would harm areas that depend on tourism.

"There is no economic good that comes out of this. It is just a question of how bad will it be," said Mark Zandi, chief economist at Economy.com. "It is now likely we will get a negative GDP number for the third quarter, given all of the economic disruptions that this is creating with a shutdown of the transportation system and the financial markets."