The terrorist attacks on New York and Washington in September have taken a severe toll on the U.S. economy. Economists generally believe the sharp drop in business and consumer confidence has now pushed an already slowing U.S. economy into recession.
President Bush's chief economist, Glenn Hubbard, says it is too early to tell whether the U.S. economy is in recession. But data released last week shows the gross domestic product actually declined at a four tenths of one percent annual rate during the July to September quarter. An even bigger decline is expected in the current October to December period, which includes the heavy volume Christmas gift-buying season.
While a recession is defined as two consecutive quarters of decline and that data will not be available until January, many economists are convinced that a recession has already begun. David Kelly of Putnam Investments in Boston is one of them. But Mr. Kelly told CNBC television that without the consumer spending slowdown triggered by the terror attacks, the U.S. economy would have registered modest growth in the third quarter. "At a minimum September 11 took $30 billion out of the economy. And that was enough to change what in fact was positive one tenth of a percent [GDP] growth into negative point four tenths of a percent growth. I think we would have skirted a recession," says Mr. Kelly. "I think we would have looked back on this and said the softest quarter was the second quarter, three tenths of a percent. And we almost got into recession but just missed it."
As the economy contracts, employers are laying off workers. Nearly half a million jobs were lost in October, the biggest monthly job loss in 21 years. John Challenger, a labor market specialist in Chicago, says the job losses connected with September 11 are still working their way through the economy. He says telecommunications and other high-technology companies were the first to announce layoffs and more job cuts are coming. "Telecom has been heavy all year. It has been leading the cuts since January. High-tech came in at about that point. And all September 11 did was give them more steam," Mr. Challenger said. "Companies right now are not buying capital equipment. That affects the telecom sector. And the cuts just continue to come. The key is, we keep looking for, is when is there going to be a turnaround. And so far there is no indication that is somewhere near."
But while the economy has turned negative and job cuts are severe, some sectors are doing well. Auto sales stimulated by low interest rates are at record highs. John Challenger says other sectors are actually hiring workers. "Since 9-11 [September 11] when the retail, airline and hospitality sector went down with many more job cuts, the defense, security, military, law enforcement areas of the economy have gone up. Hiring is growing in that area," he says. "There is a rotation going on. People are leaving certain industries, manufacturing, high tech area for example, and they're rotating in to those areas of the economy that are strong, keeping unemployment certainly much lower than it could have been without those sectors being strong."
Nevertheless, largely as a result of the terrorist attacks, the U.S. unemployment rate has risen sharply to 5.4 percent. Many experts predict the jobless rate will go to six percent, before the economy begins to recover, perhaps in the first quarter of 2002.