Attacks will shake fragile consumer confidence
By STEPHEN NORTHFIELD, The Globe and Mail
Wednesday, September 12, 2001
The terrorists who launched the waves of attacks on the United States yesterday got exactly what they so desperately craved - a record body count and the undivided attention of the entire planet. And you can be sure that if one of the longer-term impacts of their heinous acts is a wrenching global recession, well, it's pretty safe to assume they'll simply see that as icing on the cake. Terrorists are big on symbolism. It's not simply what they do, it's who they do it to, when they do it and how they go about it.
The rationale for hitting Manhattan, and more specifically the World Trade Center, was obvious
- strike a hammer blow to the Money Machine, the heart of the American economy. From that perspective, action in global markets must have been wonderfully affirming for the terrorists. Investors piled into the traditional safe havens of bonds and gold; stocks cratered; and oil soared over fears the attacks could further destabilize the political landscape in the oil-rich Middle East. After a year of relentless declines in the markets and deepening economic malaise, the attacks yesterday seemed to confirm the growing sense of anxiety that has gripped much of the planet this summer. It felt as if what little hope there was left for a speedy recovery from the downturn seemed to disappear in the smoke and ash and gloom that hung over Manhattan yesterday. The attacks could not have come at a worse time. A good swath of Asia is in recession, while Europe teeters on the brink.
The U.S. economy, that once-unstoppable wealth-generating machine, has been languishing for more than a year. The economy isn't in recession, at least not by the textbook yardstick of two consecutive quarters of declining GDP. But, to the million-plus Americans whose jobs have vanished amidst the deepening economic gloom over the past year, the distinction seems entirely semantic. These are tough times, especially in the shelled-out manufacturing sector that's borne the brunt of the decline. Canada, which had been displaying a remarkable resilience to the slowdown south of the border, has recently been showing clear signs of capitulation. Growth slowed to an anemic 0.4 per cent in the second quarter, which means that the galloping economy of last year hasn't merely slowed to a trot, it's pretty much stopped entirely. Economists are bracing for worse, hacking away at forecasts for this year and next.
The U.S. does the heavy lifting in the global economy, and the slowdown which started there has spread around the globe. How bad things get - the difference between an ordinary cyclical downturn and something approximating a global depression - depends in no small part on how quickly the American economy pulls out of its tailspin. And the answer to that question lies mainly with the U.S. consumer, the engine that drives about two-thirds of the economy. In spite of the downturn, the layoffs and the breathtaking declines in the stock markets, the unflappable American consumer has kept on consuming and, in the process, helped the economy stay afloat during troubled times. That can't last forever - already, there are signs that American consumers may be trimming their sails. In other words, the U.S. economy is at an important crossroad. Can the economy - aided by an unprecedented easing spree by the U.S. Federal Reserve Board - recover before the consumer tosses in the towel? A growing dread that the economy will lose that race has sent markets tumbling in recent weeks.
Confidence is a subtle thing. If consumers feel secure, they'll typically keep spending. But, if they get the sense that the future is increasingly uncertain - because they see neighbours being laid off or, more dramatically, terrorists slamming planes into skyscrapers - there might be a tendency to shut down. The $1.35-trillion (U.S) in tax cuts - the Bush administration's key effort to kick-start the economy - will mean nothing if consumers stuff it under the mattress. In recent weeks, the Bush administration has been doing everything it can to shore up the fragile psyche of the U.S. consumer. Treasury Secretary Paul O'Neill has been the government front man, reassuring anyone who'll listen that, yes, things are finally getting better. Now, as the nation steels itself for an unprecedented time of grieving, that sales job just got a lot tougher.