Country Tries to Get Back to Business
The nation clawed its way back into business Thursday, cautiously permitting the first commercial airline flights since Tuesday’s terrorist attacks on New York and Washington, and reviving the market for government bonds.
The Federal Reserve, which pumped $45.5 billion in extra funds into the U.S. economy--four times the usual amount--one day earlier, provided Europe with an additional $50 billion in cash Thursday to meet a new craving for dollars on both sides of the Atlantic.
“No evil, no matter how unspeakable, can destroy America’s productive spirit,” Treasury Secretary Paul H. O’Neill told an afternoon news conference.
Nevertheless, troubling signs lurked behind the return of some business routine.
Despite substantial pressure to resume stock trading--at least in part to symbolize the nation’s comeback from Tuesday’s catastrophe--leaders of the New York Stock Exchange and the Nasdaq Stock Market announced they will not be ready for business until at least Monday. The decision extended what is already the longest shutdown of the nation’s stock exchanges since before World War II.
In addition, even as it approved reopening many of the nation’s airports, shut since Tuesday, the Federal Aviation Administration imposed new security precautions airline executives said will permit only a fraction of the normal 25,000 flights a day to get off the ground.
Perhaps most disturbing for the economy’s long-term prospects was a new survey Thursday that showed American consumers were spooked even before Tuesday’s attacks. The University of Michigan survey found consumer confidence fell abruptly in the first two weeks of September to an 8 1/2-year low.
Until now, Americans have consumed with considerable relish, and that has helped keep the economy from recession.
“Consumer confidence rose briefly in the spring and early summer, but there was a large decline even before the attack,” said university survey director Richard T. Curtin. “I expect the decline will get even larger now, and that means the economy’s in trouble.”
The university’s index of consumer sentiment slumped to 83.6 by Monday, from August’s 91.5. That was its lowest level since March 1993.
Analysts said the combination of tumbling confidence and the terrorist attacks all but ensured the Fed would slash interest rates even more than was already expected.
The central bank has cut its key signal-sending rate three percentage points to 3.5% since the start of the year, and was expected to cut an additional quarter point at its meeting Oct. 2. Now, many analysts predict, it will trim an additional full point or more.
“They want to make sure the economy has everything it needs to keep growing,” said David M. Jones, chairman and chief economist of Aubrey G. Lanston & Co. in New York.
However, Fed officials and other Washington economic policymakers have more immediate concerns in the wake of the attacks--making sure the system that lets Americans pay their bills is up and running, and ensuring there is plenty of cash available.
Indeed, “liquidity,” or the ability to readily borrow money, has become the buzzword of the day among economic managers, who fear the shutdown of financial markets may leave some companies and households without adequate funds.
“If I have to pay you and discover I can’t get the funds because I can’t sell stock, then you can’t pay people you owe,” former Fed governor and UC Berkeley economist Janet L. Yellen explained.
To alleviate the danger of such a chain reaction, central banks around the developed world have moved swiftly to pump extra money into the economic system.
Analysts said the Fed’s offer of $50 billion in U.S. currency to the European Central Bank on Thursday was designed to ensure foreign banks have access to cash for dollar-denominated transactions.
Its low-cost lending at the “discount window” was designed to do the same for U.S. institutions. Discount-window lending jumped from an average daily volume of $11.7 billion to $45.5 billion on Wednesday, according to central bank statistics.
The economy gained additional liquidity Thursday when the government bond market, shut by the terrorist attacks, reopened. The price of Treasury bills, bonds and notes soared, and their yields or market interest rates tumbled, as investors sought safety in available financial instruments.
Bush administration officials and some independent analysts have sought in recent days to downplay the long-term consequences of the attacks, comparing them with earthquakes or hurricanes that cause tremendous damage without threatening the economy’s ability to function.
“A medium-size city has disappeared from the face of the U.S. . . . That’s sort of my shorthand way of putting this in context,” a senior White House economist told interviewers.
But other business and economic leaders painted a considerably darker picture of the nation’s economic prospects in the wake of the attacks.
“This gets down to whether America still has the mettle to rally and recover,” said David F. D’Alessandro, chairman and chief executive of John Hancock Financial Services in Boston. “If the president and the government are seen as hesitating and making mistakes, we will have an economic slump the likes of which most of us have never seen,” he said.
Analysts were especially concerned about the growing likelihood of a connection between the attacks and Middle Eastern terrorists, such as Saudi fugitive Osama bin Laden. They said the link, if established, would mean almost any retaliatory action by the U.S. would drive up energy prices.
“If we’re going to war against fundamentalist Islamic terrorism, then the price of oil is in play,” said David Hale, global chief economist with Zurich Financial Services. “If oil did what it did during the Gulf War and goes to $50 a barrel, then we can’t avoid a recession,” he said.
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Times staff writer Robert Rosenblatt contributed to this report.
