Many economic changes in U.S. follow terror attacks

July 31, 2012

Free Market Foundation

The terrorist attacks of Sept. 11 have altered the U.S. economy in ways many economists probably wouldn’t have predicted a month ago.

The impact of greatly reduced travel on the airlines, hotels and the restaurant industry has been widely reported. But the ripples extend in perhaps unforeseen ways to other industries as well.

The television industry, which broadcast news commercial-free for several days after the attacks, is estimated to have lost $700 million in advertising revenues and the future need to create new bureaus abroad, add new technology and broaden coverage could increase overall budgets 25 percent to 35 percent over the next few years.

The dip in consumer confidence left car manufacturers with the choice of either cutting production or trying to lure consumers with big discounts and promotional campaigns with Ford seemingly opting for the former and General Motors adopting the latter strategy.

In finance, insurance companies face insured losses estimated in a range of $40 billion to $70 billion and on Wall Street, initial public offerings of stock are said to have tumbled 88 percent from the average level of the first eight months of the year.

Oil demand is down, thanks to grounded aircraft and would-be travellers sticking close to home and the number of rigs actively drilling for oil and gas in the U.S. has fallen 10 percent since July.

Furthermore, state governments face budget difficulties due to swiftly escalating layoffs which are reducing state tax collections, while increasing unemployment compensation claims. The states also face mounting Medicaid payouts and pension funds jeopardised by a volatile stock market.

Source: Jon E. Hilsenrath, Terror’s Toll on the Economy, Wall Street Journal, October 9, 2001; Paul Magnusson, Ann Therese Palmer and Christopher Palmeri, The Squeeze on the States Just Got Worse, Business Week, October 15, 2001.

For text (WSJ subscribers) http://interactive.wsj.com/articles/SB1002580969477775800.htm
For more on Terrorism/Economic Effects http://www.ncpa.org/extra/terrorism

FMF\16 October 2001