Weak Economy Compounds Financial Blow to New York

The damage to New York’s half-trillion-dollar economy from the Sept. 11 terrorist attacks is being felt from the tiniest shops near the World Trade Center to the hotel chains, garment industry giants and world financial leaders.

The blow could cause the city, already weakened by Wall Street’s slump and the cooling U.S. economy, to lag behind any national rebound.

Regional economist Mark Zandi of Economy.com estimates the impact from the World Trade Center disaster at $15 billion in lost production of goods and services, or 3% of New York’s $500-billion “gross metro product.”

The estimate for insured damage--destruction of property, injuries and loss of life--has been put at more than $30 billion.

Disaster relief and other federal aid, along with insurance payoffs for property damage and lost work time, will substantially cushion the blow and eventually may spark a rebound. But most of that money will not be put to work for months, experts say.

Gotham, in short, may be in for a bleak holiday season.

“We’re knocking on the door of Christmas,” said Joseph M. Adamko, a director of New York’s Sterling Bank, a longtime lender to the clothing industry. “Unless people’s psychology changes 180 degrees, this is not going to be a Christmas to say, ‘Ho-ho-ho!’ ”

Broadway and other tourist magnets already are suffering from a sharp falloff in business because of curtailed air travel and shaken confidence.

Hotels and restaurants, particularly in lower Manhattan, are taking a severe hit, although some are benefiting from visits by white-collar nomads who lost their offices and from patronage by engineers, insurance claims adjusters and rescue workers helping with the recovery effort.

Close to “the zone” around the World Trade Center, businesses still suffer from spotty power and phone service, problems getting deliveries from vendors and a loss of customers from shuttered office buildings nearby.

If the 1993 terrorist bombing of the World Trade Center is any guide, many of the businesses that close in the next few months will be closed for good.

Some small retail outlets owned by chain operations already have been told that they will either not be reopening or will soon close.

“We’re open but there’s nothing happening,” said Gregory LaRocco, assistant manager of Dee-Dee, a cut-rate clothing store within eyeshot of the Trade Center wreckage. “This store was already marginal, so I figure this will be the end.”

The only items moving were T-shirts with patriotic themes and American flags.

“At least we’re luckier than some,” LaRocco said last week, pointing to Chamber Bros. Close Outs, Fresco Tortilla, Golden Krust Bakery and other businesses across the street that are too damaged to reopen. “But you can’t run a business with only T-shirts and flags.”

Even for a business that is open, no phones means no credit cards.

Carmine’s Italian Seafood restaurant escaped physical damage but had its phones knocked out. On a chalkboard outside, where the specials of the day are usually listed, was a double message that has become the emblem of many businesses. At the top were the words, “We Honor Our Brave Police and Firefighters.” In smaller letters below: “Sorry, No Credit Cards.”

Bailout Needed Now

New York Councilwoman Kathryn E. Freed said the U.S. Small Business Administration loan process may be too slow to prevent bankruptcy for many.

“These restaurants don’t need help in five or six weeks, they need it now,” she said, adding that she will propose a bailout plan to the City Council.

The SBA offers loans of up to $1.5 million at 4% interest to help small firms keep creditors at bay while they start to rebuild. The agency screens to avoid lending to businesses that were already close to folding.

“We’re trying to bring businesses back to pre-disaster conditions,” SBA spokesman Carl Gaspari said. “We are not looking to do entrepreneurial expansion.”

In New York’s garment district, the shutdown of air travel caused a wave of order cancellations, said Adamko of Sterling Bank. The business depends on prompt shipments of imported goods for retailers’ “just-in-time” inventory systems, he explained.

The mood now in some quarters of the garment district is “beyond sour,” he said.

In the 10 days after the attack, occupancy rates at New York City hotels plunged to as low as 20%, from 85% to 90% on Sept. 11, said Dan Murphy, president of the New York State Hospitality and Tourism Assn. Nationally, hotel occupancy rates are expected to drop below 50% in the coming weeks. Hardest hit are hotels near airports.

“Everybody is experiencing cancellations, big time,” he said.

While no one yet knows how long or how severe the drop will be, hotels and restaurants since Sept. 11 have laid off about 2,000 members of the 25,000-member Local 6 of the Hotel and Restaurant Employees Union, union officials said. That is in addition to 1,000 members idled by the closing of the four hotels next to the World Trade Center, three of which may never reopen.

Echoes of Northridge

Some economists have compared the aftermath of the attack to that of the 1994 Northridge earthquake, noting that a massive federal relief effort helped Los Angeles shake off the remnants of the 1990-91 recession and start a new cycle of rapid growth. A big difference, however, is that when Northridge hit, the rest of the country was growing strongly. Today, the United States and much of the globe already are in recession or close to it.

Anirvan Banerji, research director at the Economic Cycle Research Institute in New York, said it is critical to note how poorly the overall economy was performing before Sept. 11 in order to avoid “giving credit to the terrorists for something they didn’t do.”

U.S. industrial production peaked last September, and nonfarm employment peaked in March, he said. “This attack did not cause the recession,” Banerji said.

It may be difficult to separate the consequences of Sept. 11 from those of the broader downturn, but the attack alone robbed New York of a rich pool of intellectual capital--hundreds of traders, analysts and other highly trained professionals at firms such as Keefe, Bruyette & Woods, Cantor Fitzgerald and Marsh & McLennan Co. Aside from its toll on families and friends, such a loss of talent reduces the city’s wealth-building capacity.

Eggs in a Broken Basket

Manhattan’s economy is not well diversified. There are a lot of eggs in the Wall Street basket. Of New York’s top 10 employers, four are financial services firms: J.P. Morgan Chase, Citigroup, Morgan Stanley Dean Witter and Merrill Lynch, employing a total of more than 80,000 in the city alone. And many of Manhattan’s largest law, accounting and other service firms exist largely to serve the financial community.

Wall Street’s importance as a source of New York’s wealth goes far beyond the industry’s head count. Financial services workers here earn an average of $122,227 a year--far more than any other job category.

That is why New York’s comeback depends in large part upon the rebound of the stock market.

To Ian C. Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., that is not necessarily bad news.

Signs of Rebound

True, the Dow Jones industrial average has plunged 14% in the five trading days since the attack, but Shepherdson thinks signs of a national economic rebound already are flashing, and the stock market will start to reflect that before the end of this year.

For example, the National Assn. of Purchasing Management index--an indicator of businesses’ readiness to hire and invest--”is screaming recovery,” he said.

“It will be very difficult for New York to stage a strong recovery if the Dow hangs around 8,000 for the next eight to 12 months, but I think that’s highly unlikely, “ Shepherdson said.

A strong stock market helps boost consumer confidence and consumer spending, another key to New York’s economic health.

Mayor Rudolph W. Giuliani declared last week that a good way to show defiance of the terrorists was to “come here and spend money.”

Many stores have picked up the patriotic tenor of Giuliani’s remark. A huge American flag is draped across the display window of a midtown Ralph Lauren store. A publicist Friday invited reporters to watch former President Clinton stopping in at the NBA Store on 5th Avenue.

“Shopping is a part of life,” said Alice Ross, as she picked out a gift for her husband at Sulka, a pricey Madison Avenue clothing store. “You can’t be paralyzed by fear.”