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Attack may nudge U.S. economy into recession


© St. Petersburg Times,
published September 12, 2001

The terrorist attack that leveled the World Trade Center towers also shut down U.S. financial markets and could shock the economy into a recession.

U.S. stock exchanges never opened Tuesday and remain closed today. They may not be able to resume full operations for days as rescue efforts and cleanup continue in New York's financial district.

In Europe, stocks plunged while oil and gold prices rose in the wake of the attacks. And in the Tampa Bay area, some gas stations were already raising their prices.

"The economy has been on the edge of recession now for quite a while," said Scott Brown, chief economist at Raymond James & Associates. "This will probably be the catalyst that pushes us over into a full-blown recession."

The immediate impact is the short-term disruption of normal business activity -- not just the deals that normally occupy Wall Street's attention, but air travel, shopping and tourism. There also will be a longer-term impact that is more difficult to predict.

"The firms that have their headquarters in the Word Trade Center have lost all their communication, perhaps all their records, many of their key people," said Gerald J. Lynch, an economics professor at Purdue University.

The World Trade Center's tenants included offices of investment firms such as Morgan Stanley and Cantor Fitzgerald Inc., major players in securities trading, and Bank of America. Morgan Stanley employed 3,500 people at the complex, but said it is committed to resuming full trading operations whenever U.S. markets reopen.

"The economy was very susceptible to any negative shocks, and this is a pretty big shock," said Brown at Raymond James.

One big worry is what the attack will do to consumer confidence. As manufacturing slipped into a recession and companies cut back spending, it has been the consumer who has kept the economy going.

"In the beginning, I think people's sense of security is going to be shaken," said Clearwater financial adviser Ray Ferrara of ProVise Management Group. "We're going to have to learn to live in a different way than we have in the past. The most important aspect of that is that we will survive."

One of the first signs of consumer insecurity was an increase in cash withdrawals at some banks Tuesday.

"We had an influx of people going into our banking centers for cash," reported Jennifer Tice, spokeswoman for Bank of America. In response, the bank limited cash withdrawals to $5,000, though Tice said that's a guideline subject to negotiation.

Several customers of Mercantile Bank in St. Petersburg asked about withdrawing their entire accounts, said Douglas Winton, chief operating officer.

"We assured them there is probably a whole lot more risk carrying their money around with them," he said. But Mercantile and other banks said there was no large-scale demand for cash and that, in fact, business was slower than normal.

The Federal Reserve Bank has pledged to supply extra money to the banking system if needed, as it did following the stock market crash in 1987. That will help support the economy, said Largo money manager Gerald Perritt.

"We'll get a swelling of the money supply, which is probably what the economy really needed at this point anyway," he said.

Neil Savage, chairman of United Bank in St. Petersburg, said he thinks the attack's impact on confidence will not be long-lasting.

"I think there's a shock to it, and in 60 to 90 days we'll be back to our regular habits," he said.

Brokerage firms, money managers and financial advisers are all trying to reassure clients that the best course of action at this point is to sit tight.

"The message we somehow have to get across to people is, "Don't panic,"' said Lawrence Silver, spokesman for Raymond James & Associates in St. Petersburg. "The terrorists picked that target because it symbolizes the U.S. economy and our free-market system. If people panic and sell unnecessarily, they're just helping the terrorists bring down the markets."

Money manager Perritt said stocks of defense contractors, security companies and oil companies are likely to go up in the wake of the attacks. But he said it's probably already too late for investors to buy them.

U.S. stocks fell in European trading after the terrorist attack, with one trader equating the drop to an 800-point decline on the Dow Jones Industrial Average. Money flowed instead into gold and oil. Gold jumped more than $15 to $287 per troy ounce. Oil traded for as much as $31.05 a barrel on the International Petroleum Exchange, its first foray over $31 a barrel in more than nine months.

Some Tampa Bay area gas stations immediately raised their prices in response to the possibility of international conflict and tighter oil supplies.

At the Flying J truck stop on Route 52 in Pasco County, the cost of a gallon of regular unleaded gasoline rose from $1.37 to $1.67 Tuesday morning, then dropped to $1.57 later in the day. Flying J's owners in Ogden, Utah, dictated the 30-cent price increase because they feared major fuel terminals were being closed, imperiling supply. When fears eased later in the day, Flying J eased up on the prices.

Supplier Murphy Oil raised prices 12 cents a gallon for Sam's Club and Wal-Mart, and Texaco raised its diesel prices 20 cents, said Kerry Katchouk, vice president of marketing at Risser Oil Corp. in Clearwater.

But Exxon Mobil Corp. of Dallas bucked the trend, instituting a temporary price freeze on its wholesale fuel and ordering company-owned stores to keep gas prices steady -- for now. "We have ample supply available," spokesman Tom Cirigliano said. "Our refineries, our chemical plants, are operating normally."

- Times staff writers Scott Barancik, Tamara Lush, Chase Squires and J. Nealy-Brown contributed to this report, which used information from Times wires.

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