Recession now likely, experts say
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Citing new figures suggesting that the economy was tipping into recession even before the terrorist attacks Tuesday, economists said the ripple effects from the assault would likely bring to an end the record-setting expansion that began more than a decade ago.
Though many Americans are slowly returning to work and to normal shopping patterns, car dealers report that their lots are empty, real estate agents say buying has slowed and dealmakers say corporations have put off just about every major decision.
"Even the traffic past the dealership, the car count, is down," said Raymond Scarpelli Jr., owner of two Chevrolet dealerships in northern Illinois.
Eric Wittenberg, president of McStain Enterprises, a large independent home builder in Colorado, said: "The uncertainty of the attacks and the uncertainty of how we're going to respond to them is going to weigh heavily on consumers' minds. We're expecting it to be a tougher selling environment for a while."
In an effort to kick-start the economy and forestall a sharp downturn, the government weighed a variety of options, with Congress beginning to talk of new spending and tax cuts and with pressure mounting on the Federal Reserve to cut interest rates again. Figures released Thursday showed that consumer confidence was already plunging last week and over the weekend as it became clear that unemployment had surged in August. And there were indications that people were continuing to lose jobs at a rate higher than expected at the beginning of this month.
Combined with data suggesting that August was a much worse month economically than analysts had expected, the new figures covering the first week or 10 days of September indicated that the economy had entered perilous territory by Tuesday, leaving it highly vulnerable to the chaotic after-effects of the attacks on the World Trade Center and the Pentagon.
"The economy was struggling mightily to keep its head above water before this event," said Carl Tannenbaum, an economist at LaSalle Bank/ABN Amro. "What we've seen since suggests this is enough to tip us over into recession."
While the stock market is still closed -- regulators said it would back in business Monday -- the bond market reopened Thursday, giving the first real hint of investor sentiment. Prices on government bonds surged, with investors seeking a safe place to invest. The Federal Reserve pumped even more money into the financial system, hoping to reassure investment firms and banks that plenty of money was available to help them through any problems that might crop up. Analysts said the Fed would almost certainly reduce interest rates more aggressively and keep them low for longer. There was widespread speculation also that Fed chairman Alan Greenspan would consider cutting rates well before the central bank's next meeting Oct. 2.
In Congress, Republicans started drafting plans for a package to stimulate the economy, including business tax breaks and a reduction in the capital gains rate. Democrats said that they were not sure of the package's fate but that Congress was more likely to agree on further fiscal stimuli than it would have been a few days ago.
Janet Yellen, a former Fed governor, said the big question for the economy now was whether consumers "will sit home glued to the TV, feeling that life has become uncertain and it's not a good time to buy a car or a refrigerator."
"If they decide that," she said, "it throws us into a recession."
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