US economy withstood 9/11 shock better than hoped

WASHINGTON (AFP) – The US economy withstood last year’s terrorist strikes better than many experts had anticipated, averting a feared downward spiral that could have dragged down the global economy, economists said, as Americans yesterday marked the first anniversary of the attacks on, its soil.

Although the United States emergence from recession remains fragile and fraught with risks, analysts say the economy has shown its mettle by coming out of its downturn while absorbing the massive impact of the terrorist attacks.

Americans have retrenched to an extent since the attacks, but some of the changes have been beneficial to the overall economy, including increased investment in homes and cars, encouraged by lower interest rates.

"Far from deepening and extending the recession, the attacks unleashed lower energy prices and triggered a policy response that underpinned the gradual improvement then under way," write Morgan Stanley economists Richard Berner and David Greenlaw.

With the US economy at a virtual standstill in the wake of Sept. 11, gross domestic product declined at a 0.3 percent pace – the third quarter of a moderate downturn, according to recently revised US figures.

The economy bounced back in the October-December 2001 quarter, expanding at a 2.7 percent rate, and then 5.0 percent in the first quarter of 2002, although second-quarter growth cooled to a 1.1 percent pace.

"People who believed the economy would seize up after Sept. 11 had no perspective on the core qualities of the US economy," said Steven Wieting, senior economist at Salomon Smith Barney.

Wieting pointed out that some changes in consumer activity have in fact helped the economy since the terror attacks.

"People were not interested in foreign travel, so money could have been spent on other things," he noted. "Homes and cars are on their priority list."

Some economists credit the US auto industry with helping the economy avert a deeper decline by adopting what appeared to be a risky strategy of an aggressive marketing campaign, helped by zero percent financing, less than two weeks after the attacks.

"Consumer spending has been the backbone of the current economic recovery, and auto sales have been the primary power behind consumer spending," said Sung Won Sohn, chief economist for Wells Fargo Bank.

"I could not overemphasize the importance of autos," said Sohn, who noted that the auto industry and related sectors account for one out of every six US jobs.

Although the US auto industry cut tens of thousands of jobs last year amid slumping sales, the strategy first adopted by General Motors and followed by most of its rivals after the September attacks has boosted sales this year to near-record levels and averted more job losses that could have crushed consumer activity.