U.S. delay in returning to work boosts chance of recession
By BARRIE MCKENNA, The Globe and Mail
Friday, September 14, 2001
Three full days after terrorists laid waste to New York's financial district, the United States remains in a virtual economic coma.
The transportation system that is the lifeblood of the economy is limping, stock exchanges are in their lengthiest shutdown since the First World War and businesses throughout the country are operating at something less than full throttle.
No one wants a recession. But the United States' slowness to get back to business is making one increasingly likely.
The U.S. economy was already teetering on the brink of recession in the second quarter, growing at a meagre annual rate of 0.2 per cent. Even before Tuesday's events, prospects for the third and fourth quarter weren't much better.
Add in the business paralysis that has gripped the country this week, and you can pretty well write off any hope of growth between July and year-end.
The impact on consumer confidence is likely to be huge.
But there are also more practical and immediate reasons why America is not getting back to business.
Not only could no one fly to or within North America until late yesterday, but more conventional modes of transportation were also disrupted. Canada-U.S. border crossings are choked by volume diverted from the air and by stepped-up security. This, of course, slows crucial trade flows.
Airline passengers, stranded since Tuesday, have had trouble finding alternative modes of transport. Car rental companies are refusing to rent cars to people who aren't returning vehicles to where they rented them. Even rail and bus travel has been affected. Many other people have simply abandoned plans to go anywhere.
Most public and private schools in New York, Washington, D.C., and elsewhere remained closed for two days, forcing many parents to stay home from work.
The very people the economy needs back at work, can't get there.
Many businesses miles away from the carnage, including stores and restaurants, remained closed, not just on Tuesday, but through much of Wednesday too.
And that's all before anyone tallies up the human, structural and financial loss to the lower third of Manhattan. The insurance costs alone are expected to exceed those of Florida's Hurricane Andrew, which currently holds the record as the costliest disaster ever with a price tag of $20-billion (U.S.).
Some of this may have been avoidable. The New York Stock Exchange announced it would reopen Monday, although it has the technical and operational capacity to open sooner. The NYSE building was not damaged, but officials insisted they opted to stay closed largely because of human concerns, not technical impediments or a fear the market might tumble.
The Big Board hasn't shut its doors this long since the outbreak of the First World War in 1914, when the exchange was closed for nearly five months.
There apparently was no technical reason for the Nasdaq Stock Market to stay closed. It doesn't even have a physical trading floor. Its operation depends only on people having access to a computer and a phone line.
Some brokerages were destroyed and unable to function. Many more, however, could have been back in business as early as Wednesday.
"It's in the best interests of investors to phase into a full capital market," NYSE chairman Richard Grasso explained this week.
Oddly, go-slow has never been the mantra of financial markets before, particularly in the United States. Many Asian and Latin Americans remember well the U.S. outrage that followed decisions to close financial markets temporarily when speculators threatened their financial systems during previous financial crises.
The unprecedented shutdown of U.S. airspace, loosened only yesterday after three days, also raises serious concerns. Flights were to have resumed Wednesday. They did not resume until today, and then only haltingly.
Many airports and airlines are still grappling with compliance to the new stepped-up security measures.
The World Trade Center twin towers were a symbol of American business invincibility.
Their destruction need not hobble the entire economy.