Attack Will Have Mixed Results For Economy

 
 
By Mel Duvall  |  Posted 2001-09-17 Print this article Print
 
 
 
 
 
 
 

The horrific events of Sept. 11 have left the nation numb and fearful that the attacks could send an economy already teetering on recession over the edge. At the same time, analysts and business leaders said, the attacks could serve as a rallying point to

The New York Society of Security Analysts came up with a timely topic for its Sept. 12 conference: "Anatomy of a Corporate Crisis: Managing Distress." Sadly, the site of the conference no longer existed that day. Instead of hosting business executives struggling to deal with a troubled economy, the society was using its Web site to reassure family and friends that its employees had managed to escape the 44th floor of the World Trade Centers tower before its destruction in a terrorist attack.
The horrific events of Sept. 11 have left the nation numb and fearful that the attacks could send an economy already teetering on recession over the edge. At the same time, analysts and business leaders said, the attacks could serve as a rallying point to lift the economy and the tech industry out of their slump.
"We cannot let these terrorists shut us down," Oracle Chairman Larry Ellison vowed in San Francisco. "Not the U.S., not Oracle." It may be some time before the attacks full impact on markets and the technology and telecommunications sectors is known. The New York Stock Exchange and the Nasdaq Stock Exchange were set to reopen today, after remaining closed last week in the longest shutdown since World War I. However, in overseas trading and on the Toronto Stock Exchange, which opened Thursday morning, investors showed surprising resiliency. The TSE rose at the opening of trading Thursday, Sept. 13, on the strength of banking stocks and technology stalwarts such as BCE, Celestica and Nortel Networks. Before the attack, the Nasdaq was reeling as tech firms struggled to survive the economic downturn. And despite attempts to return to business as usual, the attack left virtually every economic engine idling. Offices were shut down across the country to give employees time to be with family; trade shows were abruptly canceled or postponed indefinitely; and many tech companies rescheduled product releases and earnings news. Billions of dollars in economic activity were lost. Steve Milner, managing partner of Squar, Milner, Reehl & Williamson, an e-commerce consulting firm in Newport Beach, Calif., feared the terrorist attack "may be the greatest U.S. economic disaster in history." At the same time, Milner said, the bold front presented by President George W. Bush, the military and New York officials should help restore confidence. "Youre going to have specific problems with consumer confidence," Milner said. "How long will it go down? That depends in part on the kind of image the government and the military present." While business travelers found themselves stranded or unable to reach important meetings, the diminishing flow of capital to some struggling telecommunications companies came to a stop. Venture capital investments will likely be severely impacted in the short term, said Diana Robinson, a vice president of VentureOne, a venture capital research organization in San Jose. That timing could be critical for companies that need money now to survive, but Robinson expects a quick recovery. "We dont see anyone here thats in panic mode," she added. "The sentiment of everyone in the Valley is that we cant let these terrorist shut us down." Clearly, the attack redefined the business market, experts said. Forrester Research identified security companies such as Counterpane Internet Security, IBM and RSA Security, and defense companies including BAE Systems, Boeing, Computer Sciences Corp. and TRW as likely to experience the most demand in the future. In addition, the price of gasoline, which is expected to reach $2.50 per gallon by the end of year, will boost energy companies revenue. Companies with local presences will benefit, since business travelers will be reluctant to travel internationally. And surveillance equipment makers will prosper as privacy declines further, Forrester predicted. Online brokerages Ameritrade and E*Trade Securities continued to take orders, even though the markets were closed. In e-mails to customers, the brokerages said the orders would be placed as soon as the markets opened. Meanwhile, online retailers were still able to sell products, but the cargo planes required to deliver the merchandise were grounded by federal decree. The impact on air cargo and sophisticated logistics was not limited to air freighters. Most freight arrives in the belly of passenger jets, said Daniel Fernandez, a spokesman of The International Air Cargo Association. "Im sure that this will have a profound long-term effect on the airline and air cargo industry," Fernandez said. While the cargo industry revises its economic plans and updates its Internet logistics systems, the online travel business is also assessing the impact of the attacks. "Its going to be severe," said Robert Polk, president of Polk Travel in Denver. "We dont have a dollar figure yet, but I think this will be a further excuse for people not to be in the air." The timing of the attack came at critical juncture for both the online travel and the online retail industries. This is the time of year that holiday travelers begin booking plans and considering gift purchases. The online retail industry was already worried about consumer confidence and heavy consumer debt. Despite the severe short-term impact, in the long term the attack could fuel a more rapid recovery than might have been possible under normal conditions, said Alfred Marcus, a professor of the University of Minnesotas Carlson School of Management. "Theres no good historical analogy, but when there has been a national security threat, I would be hard-pressed to find a time when that led to a declining economy," Marcus said. "Every time, that stimulated the economy." Increased government spending is sure to act as a stimulus, since concern about the budget surplus and Social Security pales in comparison to fears about national security. Marcus said companies in the telecommunications, software, security and teleconferencing sectors could be among the first to benefit.
 
 
 
 
Contributing Editor
Mel Duvall is a veteran business and technology journalist, having written for a variety of daily newspapers and magazines for 17 years. Most recently he was the Business Commerce Editor for Interactive Week, and previously served as a senior business writer for The Financial Post.

 
 
 
 
 
 
 

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