On September 11

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On September 11, 001 the terrorist attacks on the United States left the country in a state of shock. Many Americans were afraid to use public transportation or even attend public events because of fear for the safety of themselves and their loved ones. Just after /11, many economists feared that the attacks may bring devastation to the weakened economy. Almost two years later, the United States has rebounded from the shock of /11, consumers and the economy proved to be stronger than many had thought. But how did the attacks impact business for airline companies, and the entire economy of the United States?

Being that the acts of terrorism directly involved the security of airline travel, the effects impact this industry directly. In an already struggling business, the airline industry lost $7.7 billion after the attacks in 001, not to mention hundreds of thousands of passengers (1). This caused major problems for carriers in the industry, and even forced several airlines to file for bankruptcy. United Airlines, the world's second largest carrier, let go thousands of employees during 00 to make up for losses and eventually filed bankruptcy. Prices of shares dropped immediately, leaving the shareholders to suffer heavy losses. US Airways also filed for bankruptcy, while other major airlines, like Delta Airlines, are undergoing major losses. "Atlanta-based Delta, the No. U.S. carrier, posted a first-quarter net loss of $466 million and has said it is looking to cut costs by $1.5 billion to $ billion by 005" (). Delta reduced their workforce by 16,000 employees and lost 1. billion in 00, despite union employees accepting pay cuts.

The terrorist attacks caused many other problems for the industry long airport delays, ticket taxes and rising insurance premiums. Increased security screening has been a major issue since September 11, and has led to the creation of the Transportation Security Administration(TSA). The TSA has successfully complied with the recently implemented 100% baggage-screening requirement, intercepting over 460,000 prohibited items in April of this year (). However, passengers are now asked to arrive as much as two and a half hours before their flights take off time, to ensure enough time to pass through security. As business continues at airports, the strength of American consumers can be seen. "In a survey of Americans conducted in August, 7 percent of said they felt as secure at airports as they did before Sept. 11. In the 11 months after the terrorist attack, 88 percent of those surveyed had flown commercially, according to the poll commissioned by Travelocity.com, the Internet travel service based in Fort Worth, Texas" (4).

The acts of terrorism on September 11 caused more casualties and material damage than any other terrorist acts in recent history. The short-term direct impacts were brutal to New York City. Almost 00,000 jobs were lost or relocated out of the city, at least temporarily. Several businesses and almost 0 percent of Manhattan's office space was destroyed. The total direct cost of /11 was an estimated between and 6 billion (5). It is estimated that rescue, cleanup and related costs are at least $11 billion, and the destruction of physical assets is even greater. It was estimated in the national accounts to amount to $14 billion for private businesses, $0.7 billion for federal enterprises, and $1.5 billion for state and local government enterprises (6).

As well as short term direct impacts, there were also many immediate indirect impacts. Following the attacks, forecasters lowered their projections for economic activity. This resulted in the consensus forecast for U.S real GDP growth being lowered by .5 percentage points for 001, and 1. percentage points for 00. With lowered production in some industries (airlines) and threat cautious consumers, real GDP dropped in 001. But with demand holding better than initially thought, GDP increased in the fourth quarter. Although private sector fixed investments were down, there were many things at work to compensate for the loss. Among them was increased defense spending in the fourth quarter by .5%, and other government spending as well as increased household consumption. While some firms like information technology and security saw an increase in demand, other firms lowered output and profits continuing into the next term. Although the disaster initially hurt the economy, the government responded with good crisis management. By lowering the price of credit and providing large amounts of liquidity, the Federal Reserve helped save many firms from declaring bankruptcy (6).

Middle term affects of the attacks are a bit longer lasting. The fear that the terrorists could strike again has affected several areas in hard ways. The airline industry has already been mentioned, losing around 0 percent of its relative value since September 10 (6). In 001, many theme parks like Disneyland and Universal Studios had a 10 percent decline in attendance. The tourism and service industry continue to suffer the medium term affects of /11. "Hotels fared a little better, with occupancy rates diving 15. percent last September from a year earlier, according to Smith Travel Research, an independent research firm." Even though rates are back up, they were down for the first six months of 00 (1). The insurance industry also lost huge amounts of money. The "official" insured loss estimate issued by the Insurance Services Office(ISO) stood at 0. billion. The figure is comprised of 51,000 claims in total (7). "Overall, it is estimated that commercial property and liability insurance rates have been raised by 0 percent on average". Other areas like shipping, increases in security, and military spending have also been affected. While difficult to determine, it is suspected that shipping costs have increased as a result of the /11 attacks. President Bush also proposed a $15. billion increase in the nations defense budget for 00 (8), an increase of 15 percent from the year before ().

Finally, the long-term affects of September 11, 001 may have the largest impact on the overall economy of the United States. Since /11 transaction costs have risen, lowering potential output. Higher risk premiums may occur because risk may be considered less appealing to lenders, affecting business investment in the form of higher interest rates and lower equity prices. Much like the airline industry, other businesses suffer from higher operating costs since /11. Increasing security and longer waiting times for activities are among these costs. Higher levels of inventory may also occur because items may not have been shipped on /11 when originally planned. Also, the military may be occupying more security jobs previously held by civilians, while many other resources may now be redirected toward the development of anti-terrorism devices (6).

In conclusion, when the terrorists committed their terrifying acts, they stung America from many different angles. "The collapse of both towers killed thousands still trapped inside, including almost 400 firefighters and and police officers, and caused billions of dollars of collateral damage" (7). Although a many sectors suffered from the events, the economy rebounded and stood more solid than originally anticipated. "Just weeks after the attacks, the gross domestic product a key measure of the health of the economy grew at a solid .7 percent annual rate in the fourth quarter of last year (001) and surged to a 5 percent rate in the first quarter of this year (00)" (1). As the country recovers and copes with the heavy losses, they have proved that no one can take the consumer out of the American. The GDP in the first quarter of 00 was "increased at an annual rate of 1. percent in the January-to-March quarter, a slightly better showing than the 1.6 percent growth rate estimated a month ago" (10). The attacks of /11 changed the perception of Americans forever and forced them to reevaluate the security of their everyday lives.

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