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Attacks Could Push U.S. Into Recession, but Hope Remains

Thursday, 13 September 2001 12:00 AM

"It wasn't a healthy economy to begin with, and this could be just enough to push us into a mild recession," said Jack Kyser, chief economist with Los Angeles County Economic Development Corp.

"It's going to give a hit to consumer confidence," Kyser told United Press International, in a telephone interview. "There has been a complete disruption of passenger flights. Consumers are going to pull back."

Besides the airline industry, Kyser said, tourism, retail and the shipping sectors will feel the negative effects of Tuesday's attack. Tougher security measures now in place at the nation's airports will increase shipping and travel expenses that will be passed along to the consumer.

"Any industry that depends on air freight is going to experience interruptions to its businesses" and increases in the costs associated with doing business that would be passed along to the consumer, he said. According to a survey released Thursday by researchers at the University of Michigan, consumer sentiment declined even before Tuesday's terrorist attack.

The index fell to 83.5 in early September, the lowest reading since the economy was emerging from recession in 1993. The index read 91.5 in August and 106.8 a year ago, the survey said. Economists expected the number to remain near August levels.

Researchers also found that consumers were worried about losing their jobs early in September, and believed the unemployment rate, which last month jumped to 4.9 percent, would go even higher.

Hugh Johnson, chief investment officer at First Albany, said growth in the third quarter would decline slightly because of Tuesday's attacks, before predicting a mild upswing for the fourth quarter.

"This economy clearly slowed in the second quarter, clearly slowed in the third quarter, but the real issue facing investors is still the same, and that is, will the economy start to do better in the fourth quarter and I'm saying yes," said Johnson. "I'm predicting that, and there are signs that will indeed happen."

Despite the bleak economic news, the slumping markets, which will open Monday, are expected by some analysts to open stronger as flag-waving investors show that America is still strong. After a strong opening, some analysts predict that economic realities could take their toll, sending the markets lower.

New York Stock Exchange Chairman Richard Grasso said Thursday that trading in all equities would resume Monday at 9:30 a.m. EDT. The opening will be subject to system tests conducted Saturday.

"There are a lot of institutional investors that are thinking along those lines, some are very patriotic investors, more patriotic than you might have guessed," Johnson said. "But in addition to that the market is at undervalued levels and many have told me … if they get a down draft of stocks when the markets open … they're looking at it as a buying opportunity."

"My guess is they will not get that opportunity, because it won't go down as much as they'd like," he said.

Kyser agreed. "The terrorist's goal of causing complete chaos to the financial center failed because the U.S. came together so quickly. Everyone has confidence that the situation has stabilized."

The New York Times reports economists at J. P. Morgan, led by John Lipsky, wrote that the economy would decline in the third quarter and that financial markets would be more volatile. But, the report said that it was premature to say whether the terrorist attack would tip the economy into a recession.

"There will not be lasting disruptions to the U.S. economy or its financial system from yesterday's physical destruction," the report said. "A return to normalcy should be evident by next week. Any lingering harm to the Manhattan economy (which accounts for about 2.5 percent of overall U.S. G.D.P.) will be offset by rising public spending on infrastructure and security."

Copyright 2001 by United Press International.

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It wasn't a healthy economy to begin with, and this could be just enough to push us into a mild recession, said Jack Kyser, chief economist with Los Angeles County Economic Development Corp. It's going to give a hit to consumer confidence, Kyser told United Press...
Thursday, 13 September 2001 12:00 AM
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