Now the economy is running only on fumes.
Even consumer sales had been slowing before terrorists brought American commerce to a near-halt last Tuesday by leveling New York’s World Trade Center towers and attacking the Pentagon.
After last week, analysts fear that the economy will sink even further, putting it well into recession territory, as worry, uncertainty and business disruption add to the commercial burden of the nation and globe.
“It’s fair to say that economies around the world were slowing faster than expected even before these events on Tuesday,” said Alan Levenson, chief economist at T. Rowe Price Associates Inc. in Baltimore.
The next few weeks will be crucial, analysts said. In the economy’s delicate state, early moves by consumers, businesses and financial markets could tip the scales one way or another in a manner that would prove self-reinforcing. Falling retail activity and weak stock markets could further jar consumer confidence, which would have its own baleful effect on investors. On the other hand, stable stocks and steady store sales could establish a more positive long-term tone.
In any case, economists counseled keeping a close eye on consumer confidence, stock markets, interest rates, oil prices and a few other key gauges, such as the dollar, that should provide warnings of trouble ahead.
Consumer confidence and retail activity are crucial. Consumer sales account for some three-fourths of the U.S. economy.
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“If we all hunker down and fall into this bunker mentality and stop going to the malls and going to the ballgames and going to restaurants, the economy will certainly slide into a prolonged recession,” said Mark Zandi, chief economist for Economy.com in West Chester, Pa.
“If, on the other hand, we remain calm and continue to do what we always do, there’s a good chance we’ll get through this without a full-blown, drawn-out recession.”
Many analysts are comparing the present crisis to Iraq’s invasion of Kuwait in 1990.
The Persian Gulf situation helped spur the last U.S. recession, which began in July 1990 and ended in March of 1991. The recovery, not coincidentally, came right after the Western alliance drove Saddam Hussein’s forces back into Iraq.
While jump-starting the economy shouldn’t be the reason President Bush retaliates against terrorists, a hard, decisive U.S. blow against those responsible for last week’s attacks could reassure consumers and businesses in the same way that Operation Desert Storm did in 1991, said Robert T. Sweet, chief economist for Allied Investment Advisors in Baltimore.
“You’ve got to get reasons or rationales for the consumer to spend, and he or she is going to be reluctant to spend after Sept. 11’s event,” Sweet said. “If we retaliate and take action, the consumer will know we are doing something about this.”
Usually, economic reality takes days or months to show up in price, sales and production statistics, but the stock market is an exception. “It’s almost like a canary for the coal mine,” said Sung Won Sohn, chief economist with Wells Fargo & Co. in Minneapolis. “How healthy is the canary going to be? Everybody expects some initial selloff. That’s not going to be a surprise — a couple, three days. Maybe even a week. But after that, do we stabilize, or does the stock market continue to tank? For me, that would be a very important indicator of investor confidence.”