Business Costs Expected to Be Staggering

The terrorist attacks will cost the U.S. economy tens of billions of dollars and could tilt the economy toward recession, as industries from retailing to insurance to airlines suffer blows, business forecasters said Wednesday,

Analysts, while downplaying concerns of lasting economic upheaval, said the toll to business is expected to be compounded by a dent in consumer spending, weakening an already-sputtering economy.

UCLA business analysts said Wednesday in their quarterly forecast that both the nation and state already appear to be in slowdowns that are tantamount to a recession. Still, UCLA and other forecasters anticipate that growth will pick up here and across the country early next year.

Tuesday’s attacks are expected to cost insurers $10 billion to $15 billion for losses to buildings and businesses, as well as to cover life insurance claims.

Beyond that, the cost of everything from deferred spending by edgy consumers to delayed shipments for manufacturers and postponed business deals, could sap the economy, driving the losses far higher.

“We really are looking at [economic losses] of $100 billion to $200 billion, and that’s assuming that there’s not something like an all-out war in the Mideast,” said David A. Wyss, the chief economist at Standard & Poor’s in New York and one of the few analysts to predict the potential costs.

“There’s a lot of disruption to business, but how much of it will be recovered, and how quickly, is up in the air,” he added. Still, Wyss said, “We think the impact will really be in the next three or four months, that people will recover their confidence by the beginning of the year.”

The falloff in air traffic, together with higher passenger security costs, could cost the airline industry $1 billion, according to one industry consultant. Advertising losses to the cable and broadcast industry were estimated at several hundred millions of dollars.

Two key sources of economic strength this year--real estate and consumer spending--already are seeing the short-term economic impact. Real estate specialists said some nervous buyers and sellers canceled deals that were set to close this week.

Michelle Dykstra, a real estate agent in La Jolla, said a tentative deal that she brokered involving a $1.2-million home fell through at 9 a.m. Wednesday. She said the prospective buyer, jittery about the economy, backed out on the last day of his 45-day escrow--even though he had to forfeit his $20,000 down payment.

Although it is impossible to know the full financial impact on the industry yet, the fallout from Tuesday’s events probably will be felt for at least several weeks, said David Lereah, chief economist for the National Assn. of Realtors.

Shopping centers throughout the country, most of which had closed on the day of the attacks, were open Wednesday. But other than purchases of groceries or health-related items, business was slow.

“People are glued to their television sets; they’re not shopping,” said Malachy Kavanagh of the International Council of Shopping Centers.

The industry’s main concern is discretionary purchases--the buying of goods other than necessities such as groceries and prescription drugs. Those sales are the least likely to be made up when life returns to normal.

“People will shop as a recreational activity. It’s not purpose-driven, so you probably have a bit of a loss there,” Baker said. “And there’s all the other things people do when they shop such as have something to eat or see a movie. That’s a loss you can’t get back.”

By one assessment, Tuesday’s store closures could cost the already fragile economy around $3 billion.

The setbacks to U.S. businesses, particularly retailers, airlines and hotel chains, could lead to a decline in fourth-quarter profit of as much as 15%, according to Thomson Financial/First Call, a financial research firm. Before the attacks, the firm forecast a decline of at least 5%.

The bottom line in the UCLA outlook, written before Tuesday’s attacks, generally squares with the school’s last forecast in June. One of the few significant changes was an improved assessment of California’s situation over the next couple of years. UCLA analysts attributed that change largely to the easing of the state’s power crunch and a revision in their thinking on the impact the state’s energy problems.

Edward E. Leamer, director of the UCLA Anderson Forecast, played down the potential impact of Tuesday’s attacks on the economy. He said the 1994 Northridge earthquake had only a mild effect on the overall Southern California economy.

“Hurricanes and earthquakes don’t produce recessions. In fact, they can be job-creating,” Leamer said. “There are thousands of people around the globe filling in, and thus limiting the impact that this terrible tragedy will have on the economic system.”

Many Southern California companies disrupted by the tragedy returned to work Wednesday. Around the Southland, theme parks opened their gates, the ports loaded cargo and workers began filing back into public buildings and skyscrapers emptied Tuesday over concerns that they might be targets for terrorists.

At the Port of Los Angeles, Coast Guard personnel inspected the cargo of all incoming vessels as part of new safety procedures, said port spokeswoman Julia Nagano. Such heightened security was evident throughout the region.

Some welcomed the chance to do something useful after spending hours tuned in to broadcasts of the tragedy, watching helpless and horrified.

“Having work to do has been a good distraction,” said Mimi Weisband, spokeswoman for Crystal Cruises, whose Century City office tower was evacuated Tuesday. “Yesterday, I was glued to the television.”

Sorrow was manifest around water coolers and conference rooms as workers swapped stories and shared their grief. Employees at the Orange County office of AmerisourceBergen Corp., the nation’s largest drug wholesaler, held their own memorial service Wednesday. “People are feeling a bit weepy,” said spokeswoman Donna Dolan. “I don’t know how much work is getting done.”

In addition to the psychological impact on employees, logistical hurdles to doing business remain. With the nation’s airports still shut down, executives were stranded and business meetings had to be postponed.

Arnold Peter, a Los Angeles lawyer with Littler Mendelson, the nation’s largest employment law firm, had three trips planned this week, including one to Portugal to close a business sale.

“If it doesn’t happen, it’s going to have a significant impact on that company,” he said. “Can you imagine the economic impact this is going to have just in terms of the loss in productivity?”

But experts wouldn’t hazard a guess as to how to measure the effects of Tuesday’s closings or the projected impact on the economy if consumer confidence plunges.

“The short answer is: I don’t know,” said David Huether, economist with the National Assn. of Manufacturers. “And anyone who quotes you a figure is guessing.”

The key unknown that clouded the economic forecasts was whether the attacks would lead to a serious regional war. That, they said, could drive up oil prices dramatically, possibly bringing on a serious recession.

One of the few points that appeared clear to analysts is that consumer spending, one of the U.S. economy’s saviors this year, will suffer a chill.

“In the short run, you will have a loss of tourism, trade and things like that, which will make the fourth quarter look pretty bad. You may even have, in effect, a short recession,” said Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center.

But Dhawan added that the probable boost in defense and security-related spending “will give a long-term boost to the economy. What you lose on one hand in the short run, you will gain in the long run.”

Even Sung Won Sohn, chief economist of Wells Fargo & Co., who drew widespread attention Tuesday by declaring that “a full-blown, global recession is highly likely,” toned down his remarks Wednesday.

“I think the economy will suffer some, but we don’t know by how much,” Sohn said. There are too many uncertainties.”

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Times staff writers Liz Pulliam Weston, Diane Wedner, Lisa Girion and Marc Ballon and Bloomberg News contributed to this report.