Reverberations

In the weeks since the Sept. 11 terrorist attacks, two things are crystal clear: The U.S. economy is, at least temporarily, in terrible shape, and while some businesses are suffering, others are prospering.

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By ROBERT TRIGAUX

© St. Petersburg Times,
published September 30, 2001

LAS VEGAS: More than 250 conventions canceled or postponed, an estimated $100-million hit.

EASTMAN KODAK: No tourists? No film buyers. Third-quarter earnings will be more than 38 percent lower than expected.

BOEING: Big layoffs. "Absolutely gut-wrenching," says Alan Mulally, CEO of Boeing Commercial Airplane.

BLOCKBUSTER: As people hibernate at home, rentals soar 17 percent.

AMTRAK: Plane? No. Train? Yes. Rail travel is up 33 percent.

CRUISE MISSILE: Will Raytheon-made weapon of Persian Gulf War fame be back in demand?

Nineteen days after the terrorist attacks, economic pain continues to ripple across the country and across industries.

Even before Sept. 11, this year was turning into an economic dud. Now, in the words of Standard & Poor chief economist David Wyss, corporate earnings could show "the sharpest drop we've ever seen" in the postwar era.

Some of the nastiest business news -- the blow to the airline industry -- is just the tip of the iceberg. Airlines such as United, American, Delta, Continental and US Airways already are slashing 100,000-plus employees from their payrolls to counter sharp declines in passenger travel. Tourism-dependent spots from Las Vegas to Florida, including Orlando's theme parks and the Tampa Bay area's beaches, are hurting and bracing for what may be a serious downturn in visiting snowbirds this winter.

In Detroit, GM, Ford and Daimler Chrysler are sweating forecasts that vehicle sales, weak before Sept. 11, will shrink even more as war-wary consumers delay big purchases. To get shoppers back into showrooms, the Big Three started offering interest-free loans on most 2002 model cars and trucks.

The Seattle area is tightening its belt after Boeing Co., only months after choosing Chicago as its new headquarters city, said it will lay off up to 30 percent of its commercial airplanes employees, or as many as 30,000 workers, starting in December.

The Boeing downsizing "is going to have a major impact on our state," Washington Gov. Gary Locke says. Whether it pushes the state into a recession, Locke says, "really depends" on what happens in the next weeks and months.

Other cities and regions vulnerable to similar downturns also hold similar wait-and-see outlooks.

Not that the U.S. economy is in such terrible shape that it can't bounce back in 2002. But doubt over the country's direction in the next few months has put many financial decisions on hold. Will the United States be at war? For how long? Will there be terrorist retaliation?

"Uncertainty is now pummeling share prices," says Lynn Reaser, chief economist and senior market strategist for Banc of America Capital Management.

Far more than Federal Reserve chairman Alan Greenspan's interest rate cuts, the actions of Defense Secretary Donald Rumsfeld will influence the U.S. economy well into 2002.

Secondary economic hits from Sept. 11 are still emerging nationwide.

In Tampa, weak travel demand drove the already frail 800 Travel Systems to cut 150 employees and bid goodbye to its chief executive. Fort Lauderdale's Renaissance Cruises, dependent on too-distant tours of Mediterranean islands, sought bankruptcy protection Wednesday.

Friday alone, more than a dozen diverse companies lowered their earnings expectations, blaming the terrorist attacks for weaker demand for their products. Among them: New York beauty products giant Estee Lauder Cos.; Mandalay Resort Group, Las Vegas owner of the Luxor and Circus Circus casinos; San Jose, Calif., semiconductor maker Atmel Corp., which will cut 2,500 jobs; and Atlanta's United Parcel Service, the world's No. 1 package-delivery company.

Nordstrom Inc., a new retail player in the Tampa Bay market, is expected to slash prices on clothes, shoes and accessories by as much as 60 percent in the next week. That's the retailer's first early autumn sale since the company started selling apparel almost 40 years ago.

Another casualty: Eastman Kodak in Rochester, N.Y. Already struggling, the company says the drop in tourism will hit film sales and third-quarter earnings will come in more than 38 percent lower than expected.

Even the number of U.S. workers filing first-time applications for unemployment benefits jumped 58,000 to 450,000 during the past week. That's the highest level since July 1992, according to the Labor Department.

Get the financial drift?

Friday's news that the U.S. economy managed to eke out a tiny 0.3 percent growth rate in the April-June quarter makes it a pretty safe bet that a recession -- two consecutive quarters of economic contraction -- is under way for the first time in a decade.

Not all is in a swoon. A few players in the economy are doing okay -- even benefitting in the wake of the attacks.

Certainly, some defense companies should prosper as the country gears up for what may be a multiyear conflict. But which ones?

Investors are making some guesses. At northern Virginia's General Dynamics, which owns St. Petersburg tank ammo manufacturer Primex, shares are up more than $14 from the $75 price just before the terrorist attacks. In contrast, shares of Lockheed Martin of Bethesda, Md., the nation's biggest defense company, have changed little since the Sept. 11 attacks.

In Los Angeles, Northrop Grumman shares have climbed from $82 to nearly $103 in the same period, for good reason. The company is developing a long-range, unmanned surveillance vehicle and has invested heavily in electronic warfare systems, two products likely to help the country pursue terrorists.

Raytheon of Lexington, Mass., became almost a household name in the Persian Gulf War. The company's Patriot interceptor missile impressed people on the home front who watched on CNN as it was fired at remote targets. Raytheon's Tomahawk cruise missile was frequently launched from Navy ships and submarines. The company's stock has climbed from about $25 to $35 a share since Sept. 11.

(U.S. Special Forces, already reported to have sent men to Afghanistan, use an 18-pound radio made by Raytheon.)

But this is a not a conventional war. It is too early to tell if such giant defense companies are likely to find their military weapons and technology in serious demand.

Nor are defense companies the only beneficiaries from Sept. 11.

Travelers who shun airlines have taken to trains and buses. Washington's Amtrak and Greyhound of Dallas say business has jumped by more than 33 percent since the attacks. Greyhound has pressed nearly all of its 2,300 buses and 5,000 drivers into service, a big jump from the 1,800 buses that roll across America on a normal day.

Even so, more people are just staying home.

That means videotape, DVD and video game sales are likely to rise, analysts say. Blockbuster Entertainment, a Dallas division of Viacom, won't release numbers but Merrill Lynch says the company has seen same-store sales pick up 17 percent since Sept. 11.

Also, new subscriptions to cable TV and satellite services are on the rise as more people hunt for extra news coverage.

Time Warner Cable, the Tampa Bay area's dominant cable system and No. 2 nationwide with 13-million subscribers, has seen jumps in new subscribers. Also increasing: sales of Time Warner's self-installation kits for its Road Runner high-speed Internet service.

Then there are those companies that do not fall easily into either camp of winners or losers. Consider energy companies that drill for oil and gas.

Since the attacks, Bush administration officials have pushed anew the idea that the United States should pursue drilling in the Arctic Wildlife Refuge and other environmentally sensitive areas. The pitch: Let's reduce our dependence on foreign oil.

But oil prices hit nearly two-year lows this week. Natural gas prices are also down. That has reduced the financial pressure on consumers and businesses and discouraged drillers from expanding.

That's the economic snapshot today. A bit fuzzy. Clouded with doubts.

Tomorrow's a whole new ball game. But no more certain.

- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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