The successful terrorist attack on two pre-eminent symbols of American power may be the final stroke needed, economists say, to drive the U.S. and world economies into recession.
For months financial observers have warned that if American consumers stop spending, the U.S. economy could slip into an abyss. And it is widely acknowledged among economists and many politicians that the American consumer's continuing willingness to buy big-screen TVs, autos and homes has been propping up a lackluster global economy.
Virtually nothing could have proved more damaging to American consumer confidence, some economists say, than vivid, horrific images of the collapse of the country's best-known center of global commerce, coupled with a direct assault on the United States' military command headquarters.
"I think this event could very well push the economy over the edge, and I am afraid this is not limited to the United States," said Anthony Chan, chief economist for Banc One Investment Advisors.
The effect will stretch far beyond U.S. borders, Chan said, because the destruction was replayed over and over around the world on TV, making it one of the most vivid disasters in history. Millions of people watched as hijacked planes crashed into and demolished an international center of finance.
For precedent, experts point to the economic fallout that followed the January 1991 air strikes on Iraq and Iraqi forces in Kuwait.
Americans sharply curtailed their spending and air travel, both domestically and internationally, in the months that followed. That mass pullback exacerbated an already deteriorating economic climate.
The falloff in business and leisure travel caused financial distress among the nation's major air carriers and contributed to putting at least one carrier out of business. After Chicago's Midway Airlines filed for bankruptcy protection in March 1991, much of the blame was laid at the feet of the gulf war.
Even though the conflict with Iraq lasted less than three months and none of the destruction was on U.S. soil, the impact continued to be felt for months afterward. And when the recovery did begin in 1992, it was far from robust.
This time around, the immediate impact of the disaster will be measurable, financial experts agreed.
"It may be the demarcation between [the economic prosperity] we've been through in the last 10 years and whatever comes next," said Bank One Corp. CEO Jamie Dimon.
Economic activity in September will contract because shopping malls and airports were closed Tuesday and many will remain closed Wednesday.
"At least 6 percent of the month, we will have virtually no retail activity. That will cause a huge drop in consumer spending in September," said Brian Wesbury, chief economist with Griffin, Kubik, Stephens & Thompson, a Chicago investment bank. "That's likely to result in a contraction of growth in third-quarter [gross domestic product] of at least 1 percent. That's pretty significant."
The terrorist assault comes as the economy continues to struggle, throwing off mixed signals about whether it's heading toward an official recession or recovery. Consumer confidence declined for a second consecutive month in August as jobless claims spiked. Stock prices continue to languish with few, if any, signs of a rebound in sight.
"The economy has been performing a high-wire act between a recession and anemic growth," said Sung Won Sohn, chief economist with Wells Fargo Co. "This could not have happened at a worse time. A full-blown global recession is now highly likely."
Although destroying the World Trade Center doesn't damage the U.S.' ability to manufacture goods, it will have a huge psychological effect, Sohn agreed. And that will affect how much consumers are willing to spend on everything from fall fashions to holiday gifts.
The loss of consumer confidence is not the only threat to the U.S. economy and world financial health. The airline industry obviously will suffer serious damage, experts said.
All U.S. passenger aircraft were grounded Tuesday after two United Airlines and two American Airlines planes crashed, three of them in the attack, killing several hundred people and frightening millions more who canceled travel plans.
A dramatic falloff in travel, however brief, is just what the airline industry doesn't need when it is expected to lose $2.5 billion this year.
"If you're looking for an air travel collapse, this is it," said Harald Hendrikse, aerospace analyst at Credit Suisse First Boston in London. "We were already having the worst year in aviation history, and this will make it worse," he said.
In the meantime, mail and airborne packages will not move and hundreds of thousands of people are stranded.
The transportation industry will feel longer-term effects as well, noted Paul Kasriel, chief economist with Northern Trust Corp. "There are going to be all kinds of new security regulations and procedures which are going to impede business. We are going to be spending time and dollars on security, which will decrease productivity."
U.S. financial markets are another victim.
All major markets were closed Tuesday, freezing trading in many billions of dollars worth of stocks, bonds and commodities. In the longer term, the markets will have to deal with the loss of human capital.
The World Trade Center's twin towers were filled with bond traders, equity analysts, money managers, insurance underwriters, import-export specialists and thousands of other people whose skills are vital to the global economy.
The loss of that human infrastructure is bound to hurt the economy, said Wells Fargo's Sohn.
Before the economy can begin to recover from this latest blow, the government must pinpoint the perpetrators and convince Americans that such horrific events are unlikely to happen again, said Banc One's Chan. But Tuesday, such developments were difficult to imagine.
"At this juncture, those prospects are very bleak," Chan said.