Wartime Recession?

Bef

ore the U.S. military has fired its first $1 million missile at Osama bin Laden, the high price of America's new war is already starting to add up. Last week was the worst since the Great Depression for the Dow Jones industrial average, which lost almost 1,400 points, or 14%, in five frantic trading days, erasing nearly $1.4 trillion in investor wealth--at least 10 times the property damage caused by the terror attacks against the World Trade Center and the Pentagon. The nation's airlines announced that they are sending more than 80,000 workers to join the growing ranks of the pink-slipped, now up to 1.2 million for the year. And given that travelers are staying firmly planted at home, the nation's tourism business has suddenly ground to a near standstill.

INTERACTIVE GRAPHICS Map: Hunting Osama Map: Nukes Pipeline Interactive: Taliban P.O.W. Revolt More Graphics Tora Bora Nukes Pipeline Taliban Revolt Last Bastions Women & Islam No Refuge Taliban on the Run Afghan Caves Mood of the Nation Mazar-I-Sharif Terrorist Timeline Al-Qaeda Suspects Flu/Anthrax Sharing Secrets Al-Qaeda's World Ground War 11.4.01 Bush Team Grades Bioterror Threats War in Winter Workplace Safety Afghan Targets Anthrax Pathogen A Ground War An Uneasy Ally Targets Hit Search & Destroy Firepower & Food Frozen Assets Safety Guide Mideast Leaders Agents of Death Afghanistan Military Buildup Terrorist Cells Our Weapons Deadly Paths Twin Terrors   CNN.com Latest news: War Against Terror RECENT COVER STORY Closing In Dec. 24, 2001 Past Issues Taliban Last Days Dec. 17, 2001 ----------------- Lifting the Veil Dec. 3, 2001 ----------------- Hunt for bin Laden Nov. 26, 2001 ----------------- Thanksgiving 2001 Nov. 19, 2001 ----------------- Inside Al-Qaeda Nov. 12, 2001 ----------------- Defender In Chief Nov. 5, 2001 ----------------- Going In Oct. 29, 2001 ----------------- The Fear   Factor Oct. 22, 2001 ----------------- Facing   the Fury Oct. 15, 2001 ----------------- How Real   Is the Threat? Oct. 8, 2001 ----------------- Life on the   Home Front Oct. 1, 2001 ----------------- One Nation,   Indivisible Sept. 24, 2001 ----------------- Day of Infamy Sept. 14, 2001   PHOTO ESSAYS Kabul Unveiled Taliban on the Run More Photos >>> MORE STORIES Where's OBL: Letter from Tora Bora Anthrax: Where the Investigation Stands TIME/CNN POLL: Americans Standing By Bush's War More Stories >>>

Even aerospace giant Boeing, which has a sizable defense division that should pick up some of the slack from its commercial jet business, said it will lay off as many as 30,000, or 15% of its work force, by the end of 2002. For most observers, it's no longer a question of whether we are in a recession but how long it will last. Mark Zandi, chief economist at economy.com, calls the terror attacks "a disaster of nationwide proportions."

What's going on here? A war is supposed to throw a life preserver to a floundering economy, not sink it. Well, as Americans are starting to realize, this is not your typical war. This time there won't be any massive arms buildup and full-scale mobilization of resources. We won't be launching Liberty ships or new fleets of bombers to fight terrorists armed with box cutters.

Indeed, with the home front threatened, consumer confidence waning and businesses hunkering down and putting expansion plans on hold, the U.S. is experiencing the worst aspects of a wartime economy with few of the benefits. Many observers think the 4.9% August unemployment rate, which had already risen a full percentage point over the previous 11 months, could now hit 5% to 6% early next year. Foreign investors, who lately have plowed $500 billion a year into the U.S. economy, no longer view the dollar as the safe haven it once was. And housing, one of the last sectors of the economy to show resiliency, seems to be dragging; housing starts fell nearly 7% in August, the government reported last week.

In the aftermath of the terrorist attack, consumers and business leaders alike are in mourning. "We're all walking around with heavy hearts, and when you add light wallets to heavy hearts, it's even more devastating," says Nicki Grossman, president of the Greater Fort Lauderdale Convention and Visitors Bureau. All across Florida, where more than half the visitors arrive by air, the once thriving tourism industry has been decimated. In the Orlando area alone, 253 groups representing 32,531 attendees have canceled visits set for September, and an additional 82 groups have nixed their plans for October. In Las Vegas, only half the city's 125,000 hotel rooms were occupied last week, down from 94% a year ago; Park Place Entertainment announced last week it was postponing the $475 million construction of a hotel tower at Caesars Palace. From New York City to Los Angeles, waiters, travel agents and Broadway actors are all losing work.

The pain looks likely to spread to other industries as corporate profits get hit. Many companies, such as Intel and United Technologies, are bracing for the call-up of the Reserves, which will sap those organizations of expertise that isn't easily replaced. And new, tougher security measures for cargo at airports, shipping ports and border crossings could disrupt the just-in-time supply chain that has been one of the key accelerators of growth during the past decade. Companies could be forced to carry higher, costlier levels of inventory. With critical parts delayed at the U.S.-Canada border, Ford, General Motors, DaimlerChrysler and Toyota have had to idle assembly lines and reduce production. And some florists have had trouble getting their regular supplies from South America. "The biggest economic cost of being victims of terrorism is through lost productivity," says Neal Soss, chief economist at Credit Suisse First Boston.

Once the initial shock and grief wears off, people may return to shopping as an escape from the barrage of harrowing TV images. "Fashion is emotive, and female consumers in particular shop to make themselves feel good," says David Wolfe, creative director at the Doneger Group, a market-research firm in New York City. Automakers are trying to kick start customers; in the past week, with sales slipping, Ford and GM rolled out interest-free financing for new cars bought before the end of October. At an art gallery in Santa Fe, N.M., a show that opened only three days after the tragedy quickly sold out. "I think people wanted something beautiful to look at amid all this death and destruction," says owner Charlotte Jackson.

So far, though, most people seem willing to stock up on just the bare essentials. "I'm only spending money that I absolutely have to, like for gas and food," says Roxanne Steiny, the operations manager of a Los Angeles e-commerce firm. Some nervous home buyers are backing out of deals just before closing. Michelle Dykstra, a real estate agent in La Jolla, Calif., outside San Diego, has already seen one client walk away before signing for an $850,000 home.