U.S. Economic Outlook: The
Impact of Terror
Russell Lamb
North Carolina State University
Campus Box 8109
Raleigh, NC 27695-8109
Russell_Lamb@ncsu.edu
http://www.ag-econ.ncsu.edu/faculty/lamb/lamb.htm
U.S. Economic Outlook
• The situation before September 11
• Direct and indirect economic effects
• Intermediate and long run outlook
The situation before September 11
• A slowdown in the U.S.
U.S. GDP Growth
Percent Change , SAAR
9
8
7
6
5
4
3
2
1
0
94QI
95QI
96QI
97QI
98QI
99QI
00QI
01Q1
Payroll Employment Growth
Thousands of Jobs
5000
4000
3000
2000
1000
0
-1000
-2000
1
0
99
1
1
99
1
2
99
1
3
99
1
4
99
1
5
99
1
6
99
1
7
99
1
8
99
1
9
99
2
0
00
2
1
00
*
Inventory Investment, Change
Billions of 1996 Dollars
60
40
20
0
-20
-40
-60
-80
94QI
94QI
95QIII
96QII
97QI
97QI
98QIII
99QII
00QI
00Q4
Business Fixed Investment
Percent Change, SAAR
25
20
15
10
5
0
-5
-10
-15
-20
94QI
94QI
95QIII
96QII
97QI
97QI
98QIII
99QII
00QI
00Q4
Equipment and Software
Percent Change, SAAR
35
30
25
20
15
10
5
0
-5
-10
-15
-20
94QI
94QI
95QIII
96QII
97QI
97QI
98QIII
99QII
00QI
00Q4
The situation before September 11
• A slowdown in the U.S.
• A weaker world outlook
World Economic Outlook
GDP Forecasts
1999
2000*
2001*
World
3.5
4.8
3.2
U.S.
4.2
5.0
1.5
E.U.
2.6
3.4
2.4
Japan
0.8
1.7
0.6
Dev. Asia
6.1
6.9
5.9
Canada
4.5
4.7
2.3
Mexico
3.8
6.9
3.5
* Forecasts
as of May 2001
Source: IMF, World Economic Outlook
The situation before September 11
• A slowdown in the U.S.
• A weaker world outlook
• But hope for a fairly quick recovery
Personal Consumption Expenditures
Percent Change, SAAR
7
6
5
4
3
2
1
0
94QI
94QI
95QIII
96QII
97QI
97QI
98QIII
99QII
00QI
00Q4
Residential Investment
Percent Change, SAAR
25
20
15
10
5
0
-5
-10
-15
-20
94QI
94QI
95QIII
96QII
97QI
97QI
98QIII
99QII
00QI
00Q4
New Home Sales
Percent Change, SAAR
25
20
15
10
5
0
-5
-10
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000 2001*
Consumer Price Inflation
Percent Change from Year Earlier
6
5
4
CPI
3
2
Core - CPI
1
Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01
Interest Rates
Percent
6
5
4
3
2
1
0
01/02/01
Daily Fed Funds Rate
Through 9/16
Trade Deficit
Billions of 1996 dollars
0
-50
-100
-150
-200
-250
-300
-350
-400
-450
-500
98:Q1
99:Q1
00:Q1
01:Q1
U.S. Economic Outlook
• The situation before September 11
• Direct and indirect economic effects
Direct economic impact: Sept.
$25 Billion total
Billions of $
4.8
4
3.9
2.6
Airlines
Hotels
Source: RFA/Economy.com
Securities
Comm.
1.9
Restaurant
Direct economic impact: Recession
Percent Change , SAAR
10
8
6
4
2
0
-2
98QI
99QI
Source: DRI-WEFA
00QI
01Q1
02Q1
Personal Consumption Expenditures
Percent Change, SAAR
7
6
5
4
3
2
1
0
-1
-2
-3
98QI
98QIII
99QI
99QIII
00QI
00Q3
01Q1
01Q3
02Q1
02Q3
Business Fixed Investment
Percent Change, SAAR
25
20
15
10
5
0
-5
-10
-15
-20
98QI
98QIII
99QI
99QIII
00QI
00Q3
01Q1
01Q3
02Q1
02Q3
U.S. Economic Outlook
• The situation before September 11
• Direct and indirect economic effects
• Intermediate and long run outlook
Intermediate and long run outlook
• The federal government has responded with
aggressive fiscal and monetary policy.
– The Federal Reserve lowered its target for the fed
funds rate to 3.00 %
– Federal reserve has pumped $100 billion in
liquidity into the banking system
– Congress passed legislation approving $40
billion for cleanup/recovery/security and an
additional $15 billion for airlines
– By one measure, this is more than the immediate
economic impact of the disaster.
Intermediate and long run outlook
• The federal government has responded with
both fiscal and monetary policy.
• The key to the outlook is the consumer
sector. Will household spending pull back
generating a second wave of falling profits,
and a recessionary spiral?
How will the consumer respond?
• Consumer confidence was plummeting before
September 11, in response to a weak employment
picture and declines in stock market wealth.
• Further job losses are on the way, adding to a weak
employment picture. U.S. based airlines have
already cut 80,000 jobs, and more may be coming.
Firms in lower Manhattan will see job losses as well.
The economic slowdown will lead to more
widespread job losses.
• In spite of Federal Reserve moves, and a lowering of
interest rates by European and UK central banks,
the stock market had its worst week ever, losing 1214 % of its value, wiping out $1.4 trillion in equity.
Addendum: What does it mean for Ag?
• A jittery consumer will mean less spending, all the
way around. Families will save in anticipation of an
economic slowdown.
• Less spending means consumers are less likely to
eat out, hurting food-away-from-home consumption.
• Domestic demand for ag products will be dampened
by the downturn.
Addendum: What does it mean for Ag?
• A weakening U.S. economy usually means a falling
dollar, as investors lose interest in U.S. markets and
interest rates fall from monetary policy actions.
• At this point, declines in U.S. interest rates are
being matched by declines in rates abroad, in the
ER, UK, Canada, and Japan.
• There is no visible decline in the value of the dollar.
The U.S. dollar remains the world’s currency of
choice.
• Ag exports will not benefit from a weaker dollar in
the near term.
U.S. Economic Outlook
• The situation before September 11
• Direct and indirect economic effects
• Intermediate and long
run outlook
U.S. Economic Outlook: The
Impact of Terror
Russell Lamb
North Carolina State University
Campus Box 8109
Raleigh, NC 27695-8109
Russell_Lamb@ncsu.edu
http://www.ag-econ.ncsu.edu/faculty/lamb/lamb.htm