Conference Board: Terrorist attacks may delay U.S. economic recovery

Gail Fosler, senior vice president and chief economist of the New York-based Conference Board, which tracks consumer confidence, says that the terrorist attacks of September 11 may push back the U.S. economic recovery until early 2002 and has increased the chances of pushing the U.S. economy into a recession. However, Fosler notes that it is almost impossible to predict the course of future economic events with any certainty.

“The Conference Board has held the view that U.S. economic growth will improve in the second half of 2001. Given the weakness in the economy in August heading into the negative impacts of the World Trade Center attack, the prospect of a significant recovery in the U.S. economy is pushed farther into the future-possibly to early next year,” Fosler said in a statement. “Moreover, the deterioration in important long-lead indicators, such as corporate profitability, business costs and wage rates, suggest that recession risks remain high.

“The United States, and by implication the global economy, remain in a state of heightened vulnerability,” Fosler continues. “Only time will tell whether the magnitude of the impact of these tragic terrorist actions is large enough to reverse the positive forces already in place. Probably the most encouraging sign is the commitment in the global community and domestic U.S. institutions to see that the economic damage is minimized.”

Fosler points out that in addition to August’s employment report, which was weaker than expected, there are certain to be anomalies in September’s data because of terror attacks. She stressed, however, that any such anomalies will not reflect the “underlying direction of the economy.”

Fosler says that consumers hold the key to the sustainability of any economic recovery, pointing out that “consumers can react swiftly and negatively to heightened uncertainty.” But, she adds, their reaction can be muted, as it was following the market crash of October 1987, when critical events are not followed by “tangible adverse economic events.”

Fosler says, “Two important differences between today and 1990 are the degree to which the Federal Reserve has eased in advance of this crisis and the likelihood that the U.S. government will inject substantial funding to offset the costs to the private sector. Indeed, further Fed easing already imbedded in financial market valuations is likely to be intensified and other central banks are likely to follow.”

Among the factors most likely to influence consumer sentiment in the next few months, according to Fosler, are the price of gasoline and the behavior of the real estate market.