As rescuers searched the rubble surrounding the World Trade Center, they waded through a sea of paper—records of bond trades, stock quotes, financial statements. But the world's financial system suffered more than paper losses in the attack on its epicenter. "A full-blown global recession is highly likely" now, says Wells Fargo chief economist Sung Won Sohn.
Large-scale disasters, such as the 1941 attack on Pearl Harbor, typically stimulate long-term growth, as federal money and private investment pour into the economy. But a shock can tip an already shaky economy into recession, as at the start of the 1991 Gulf War. Even before this week's terror strike plunged Wall Street into darkness, "people weren't feeling too great about the economy," says Northern Trust chief economist Paul Kasriel. With unemployment up, markets slumping, and consumer confidence waning, the bet was even money on the nation skirting recession. The fear now: The last-standing pillar of the U.S. economy, the consumer, will, in light of the horrific events, stay at home rather than head for malls, theaters, restaurants, and airports. "Anything that compels consumers to put away their pocketbooks and delays spending can be very detrimental," says James Stack of InvesTech Research.
Grounded. The most immediate impact was on the insurance and transportation industries. With damages in lower Manhattan expected to run into the billions, the carnage will saddle the insurance industry with "the most costly man-made catastrophe to ever hit the U.S.," says Carolyn Gorman, vice president at the Insurance Information Institute. Though property insurance does not cover losses from a declared war, it usually covers physical damage from terrorism and lost business income. The 1993 bombing at the Twin Towers cost insurers $510 million.
The grounding of the nation's 5,000 cargo and passenger planes will also exact a financial toll, and not just on the carriers. Los Angeles International Airport, says John Kasarda, professor of logistics at the Kenan-Flagler Business School at the University of North Carolina-Chapel Hill, generated $61 billion in regional economic activity in 1999—including restaurants, hotels, convention centers, and taxicabs that service travelers. That's $7 million an hour. "It's like a blizzard hitting every airport in the country at exactly the same time," says Kasarda.
The FAA's air traffic chokehold stranded not only passengers but planes shipping goods such as modems, blouses—and crustaceans. "The lobsters are piling up," says Logan Clarke, president of the Lobster Trap Co. of Bourne, Mass. This wholesaler normally ships 10,000 to 15,000 pounds a night to Europe through Boston and New York. Live shipments sent to airports on Tuesday had to be returned.
Last year, the value of air cargo into and out of the United States reached $593 billion. Losing even one day's business "obviously has a pretty horrendous impact, because it's very difficult to recover that," says Larry Coyne, CEO of air freighter Coyne Airways. "Your costs keep on mounting, because you pay for your aircraft even when they're not flying."
Yet much proved resilient, even at the very center of the storm. The nation's telecommunications network weathered what some carriers said was their busiest day ever—although many callers reported busy signals and slow Internet connections. Call volume on AT&T's long-distance network doubled for a couple of hours, with Tuesday setting a new one-day record of 431 million calls. Remarkably, the carrier's local switch, located in the Tower 1 basement, survived.
Ripple effect. The specific nature of the terrorists' target—a bull's-eye on the world's financial center—and the fact that this was an attack on America proper added to economic worries. Many financial firms—Morgan Stanley, Merrill Lynch, Cantor Fitzgerald, and the New York Stock Exchange itself—were in or around the tower. The NYSE, Nasdaq, and American Stock Exchange closed after the attack and were not expected to reopen before week's end. Meanwhile, brokerages hastened to reassure customers. CEO Philip Purcell of Morgan Stanley, a major tower tenant, said "all financial systems, internally and externally, are working."