January, 2002

The Repercussions of 11 September on the US Economy

Nermine Al-Saadani

The events of 11 September have left in their wake an array of challenges for US economic activity. Any reading of the economic consequences at the time will give a premature evaluation of what is to come, and thus a careful examination must commence by examining the post-11 September economic indicators.

Consumer and investment markets had been suffering from an overall recession since the beginning of 2001. There was also an unparalleled decrease in interest rates in 2001 to facilitate an increase in investment and consumer demand leading to relative growth. However, there was a slight upturn in financial-market activity prior to the attack.

This slight rise was cancelled out by the effects of 11 September on the tourism industry and stock markets, as well as the drastic consequences for airlines. Expectations for liquidity in the short term are uncertain; insurance companies have suffered great losses; public interest was directed away from the stock exchange, resulting in prices drops; and the crash in airline enterprise will take a long time to recover.

New policies introduced to ease the situation include a reduction in interest rates and taxes, and a $40 billion counter-terrorism budget. Tax and expenditure reductions are believed to create intermediate flexibility, which will serve to counterbalance the influence of 11 September on economic life.