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The Sept. 11 terrorist attacks were a watershed event in U.S. history, and much will never be the same. But the last thing we should do now is give the terrorists credit for tipping the economy into a recession, which is exactly what they want.

Yet in the days right after the tragedy, many commentators blamed the recession on the terrorist attacks, inadvertently handing them the propaganda coup they craved. The terrorists would like everyone to believe that a handful of them had the power to bring the mighty U.S. economy to its knees, when in reality they just kicked it when it was already down. The economy was


in a recession, and the attack will just lengthen and deepen that recession.

I know that assertion might seem self-serving, since I

warned of the recession danger a year ago and finally

predicted a recession six months ago.

Now that the recession has so clearly arrived, I'd urge any analyst who might be tempted to blame the recession on the terrorists to address two questions. First, which indicators are official U.S. recession dates based on? Second, do those indicators suggest the recession began just this month or much earlier?

The Facts

The Economic Cycle Research Institute's founder and my mentor, Geoffrey H. Moore, along with his mentors Wesley C. Mitchell and Arthur Burns, pioneered modern business-cycle analysis and helped establish the dates of every recession in U.S. history. Until the late 1970s, Moore was basically the person who decided the official dates of U.S. recessions; in fact, this will be the first recession to be dated without Moore, who passed away last year. Among the many things Moore taught me was how to determine recession dates.

The official start date of any U.S. recession is based on the consensus of the dates when production, employment, income and sales peaked. Of these, the two key indicators are nonfarm jobs, which peaked in March 2001, and industrial production, which peaked in September 2000 (see chart). The broadest measure of sales -- real manufacturing and trade sales -- peaked in August 2000. Only real personal income has not shown a cyclical decline, but that was the case in five of the past nine recessions, such as in the 1969-70 recession that followed the second-longest expansion in U.S. history.

Indicators that Date Recession

Source: Economic Cycle Research Institute

Sure, it's still too early to fix the exact month the recession began. But it obviously began months ago, not after the Sept. 11 attack.

This distinction is far from academic right now, as the terrorists would like nothing better than to rally their forces by taking credit for America's recession. We all must correct this misperception right now, not wait until the history books are written.

Before the attack, the jobless rate had already risen to 4.9%, a full percentage point above its October 2000 low of 3.9%. Historically, the cyclical rise in joblessness outside recessions has never exceeded 0.4 percentage points.

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The key forward-looking indicator from the preattack period was consumer expectations, which plunged in early September to the lowest reading in almost a decade, a clear indication that the recession was going to get worse even without the attack. That's one reason why stock prices had already started plunging in the days before the attack.

National Disasters and Recessions

In the aftermath of Sept. 11, one recurring theme was that it was the worst national disaster since Pearl Harbor. It's worth recalling that the attack on Pearl Harbor didn't tip the economy into a recession. In fact, the expansion continued for three more years.

This is because a recession is likely to occur only when the cyclical preconditions exist -- and they certainly didn't in December 1941. As the chart shows, the late 1930s and early 1940s saw ECRI's Long Leading Index, or LLI, rocket up in anticipation of rapid growth, as money supply grew at the fastest pace in at least three-quarters of a century. Thus the cyclical state of the economy was simply too strong for even the devastation of Pearl Harbor to trigger a recession. The opposite was true during the Gulf crisis, when the LLI had weakened and the economy was vulnerable to shocks.

ECRI Long Leading and Coincident Indexes (1992=100)

Source: Economic Cycle Research Institute

By late 2000, the LLI was already in decline, and the economy had become vulnerable to shocks. The triple-whammy of the lagged effect of the 1999-2000 interest-rate hikes, the oil-price spike of 2000 and the technology bust was enough to trigger a recession by early 2001. Thus, the terrorists shouldn't be credited with causing the recession, though their actions will certainly worsen it.

How Long Until Recovery?

The LLI was already in a downturn before Sept. 11, but we don't yet have September LLI data to tell us how the outlook has changed. Fortunately, we have ECRI's Weekly Leading Index, or WLI, which is released each Friday. Thus, it already reflects data from after the attack, and Friday it'll incorporate the second week of post-attack data. (It's updated at 1 p.m. EDT at

The WLI, which unlike better-known indices clearly predicted the recession, rebounded in the spring from its April lows, but by early summer it started sliding again. Still, as long as April remained the cyclical low, there was a fading hope that the economy would start to recover a few months later. In other words, a year-end recovery remained a possibility.

U.S. Weekly Leading Index

Source: Economic Cycle Research Institute

But by early September, the WLI was back down near its April low, and the week of the attack saw it drop below that threshold. Because the WLI is thus at a new cyclical low, the faint possibility of a year-end recovery has now vanished. In fact, the end of the recession is no longer in sight.

Because the WLI is designed to anticipate recessions and recoveries, that's where the first inklings of a recovery should appear. Meanwhile, though the future remains clouded by a lack of confidence, recessions are part of any free-market economy. Throughout U.S. history, recessions have always given way to recoveries, and this, the 46th U.S. recession since 1790, will be no different.

Through wars and invasions, this has remained a fundamentally resilient economy. The last time the U.S. mainland was invaded -- by the British in June 1812 -- the result was one of the shortest recessions on record, lasting just half a year. The following year, the economy had rebounded, and prosperity had returned. That's worth remembering as we face the uncertain times ahead.

Anirvan Banerji is the director of research for the

Economic Cycle Research Institute, which was founded by Dr. Geoffrey H. Moore, creator of the original index of leading economic indicators (LEI) for the U.S. Department of Commerce. Banerji is on the economic advisory panel for New York City, and is also a member of the OECD Expert Group on Leading Indicators. At time of publication, neither Banerji nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Banerji cannot provide investment advice or recommendations, he welcomes your feedback at

Anirvan Banerji.