Last week's vicious attack is going to keep the economy down for a few months, but was it really severe enough to put it totally out of commission? Alan Greenspan says no.
"The terrorism of Sept. 11 will doubtless have significant effects on the U.S. economy over the short term,"
Federal Reserve Chairman Greenspan told the Senate Banking Committee this morning. "But as we struggle to make sense of our profound loss and its immediate consequences for the economy, we must not lose sight of our longer-run prospects, which have not been significantly diminished by these terrible events."
Something bad has clearly happened to the U.S. economy. After rising in August and doing fairly well in the first part of September, consumer spending fell last week, Greenspan said. The Fed chief cited drops in motor vehicle sales and sales at major chain stores, and he noted severe cutbacks in airline and travel industries.
Signs of tanking confidence, perhaps, but Greenspan suggested that people were locked inside, glued to their television sets. It's a shade of distinction in meaning, but watching frightening events on television is not the same thing as being afraid to go outside -- and that could mean the lull is temporary.
Greenspan's testimony mentioned that automakers have reduced production and even closed some plants in the past week. On Sept. 14,
, for example, announced reductions in its North American production plans.
The disaster clearly came at a time when the economy was already on shaky ground. Unemployment reached its highest rate in August since September 1997. A Census Bureau report today showed new home construction fell to 1.527 million in August from 1.641 million in July -- a 6.9% drop to its lowest level in almost a year.
But since housing starts have been so strong all year, economists weren't worried. "They've been so high," said Jim Glassman, an economist at J.P. Morgan Chase. "It's not surprising that they came down a bit."
In the coming months, home construction will be a closely watched indicator of consumer behavior. "The fundamentals of the housing market were at a level rarely seen before," said Joel Naroff, the president of Naroff Economic Advisors. "It can bounce back sooner than we think."
Meanwhile, initial jobless claims dropped unexpectedly last week, falling to 387,000 from 436,000, the Labor Department said. In all likelihood, many unemployed workers stayed home last week and didn't claim their checks. Economists are, for the most part, disregarding the data.
Many firms, most notably
, have announced job cuts since Sept. 11, and a huge number of layoffs are expected to be in the pipeline.
Boeing said Wednesday that it plans to cut between 20,000 and 30,000 jobs in the company's commercial jet unit by the end of 2002; the announcement was followed by similar news from various airlines.
But of all the industries directly hurt by the terrorist attacks, airlines might've been the worst off. It will never be known how many would've survived if the tragic events of last week had never happened.
"Nobody has the capacity to fathom fully how the tragedy of Sept. 11 will play out. But in the weeks ahead, we should be able to better gauge how the ongoing dynamics of these events are shaping the immediate economic outlook," Greenspan said.
"For the longer term, prospects for continued rapid technological advance and faster productivity growth are scarcely diminished."