When America was attacked by Islamic terrorists on September 11, 2001, the entire business community felt the blow. Stock markets nosedived, and almost every sector of the economy was damaged by the hit. The U.S. economy was already suffering through a moderate recession, and the terrorist attacks added further injury to the struggling business community.
TUTORIAL: Market Crashes Introduction
Miraculously, however, the market and business in general bounced back in a relatively short time. By the end of the year, the U.S. Gross Domestic Product (GDP), the total value of all goods and services, had increased over the previous year about 1%, to more than $10 trillion, demonstrating that the economy had not been critically hurt by the 9/11 attacks. In fact, according to the Bureau of Economic Analysis (BEA), GDP increased 2.7% in the fourth quarter of 2001. (For more on GDP, see What Is GDP And Why Is It Important?)
Business Takes a Hit
But the immediate impact on business was significant. Gold prices leaped from $215.50 an ounce to $287, reflecting the uncertainty and flight to safety of nervous investors. Gas and oil prices also shot upward as fears emerged that oil imports from the Middle East would be curtailed. Within a week, however, these prices retreated to their approximate pre-attack levels as no new attacks occurred and deliveries of crude oil to the U.S. from its usual sources continued unabated. (For related reading, see Gold: The Other Currency.)
The insurance industry was hit with 9/11-related claims estimated at some $40 billion, although most firms held adequate cash reserves to cover these obligations.
The Impact on Air Travel
In the August prior to 9/11, U.S. air travel set a record high with 65.4 million passengers. Post-9/11 air travel declined substantially. Passenger volume did not rise above the pre 9/11 high for the first time until July 2005, an increase of about 9.7%. The bankruptcies and disappearance of many air carriers, the discontinuance of many air routes and destinations, and stricter security screening, all contributed to problems for the industry.
Even before 9/11, the U.S. airline industry was suffering because of the recession. The federal government offered a $15 billion aid package, but several airlines nevertheless filed for bankruptcy.
When commodity futures trading was temporarily halted, and international air, and cross-border imports of perishable commodities from Canada and Mexico were briefly stopped, the agricultural industry suffered major financial losses. Commodity trading and import traffic resumed quickly however, and the sector soon recovered. (For related reading, see An Introduction To Managed Futures.)
Hurting Small Business and Consumer Confidence
The small business sector, especially enterprises in the vicinity of the World Trade Center in lower Manhattan, suffered major losses. Almost 18,000 small businesses were shut down or destroyed. Again, the government through the Small Business Administration and private sector groups, made loans and cash grants to qualifying businesses in Manhattan, Virginia near the Pentagon, at Reagan National Airport and to businesses around the country that were financially hurt because of the attacks.
The Consumer Confidence Index and the University of Michigan's Index of Consumer Sentiment fell to levels not seen since 1996 and 1993 respectively. The two indexes are based on surveys which measure the mood of consumers and their proclivity to buy various large and small goods and services. (We look at this closely watched economic indicator to see what it means and how it's calculated. For more, see Understanding The Consumer Confidence Index.)
9/11 Not to Blame
Yet the size, scope and strength of the U.S. economy was so immense that when all the calculations had been concluded, the damage was relatively small. Furthermore, the most severe effects were felt in a geographically limited area - Manhattan, Washington, DC, and Virginia - so the economic damage didn't ripple out too far from ground zero.
A variety of serious economic problems hit the U.S. in the years following 9/11, many of which the economy is struggling with currently. But the tragic 9/11 attacks, cited by the late terrorist leader, Osama Bin-Laden, as an effort to destroy the American economy, did not produce the desired effect.
TUTORIAL: Market Crashes: Housing Bubble and Credit Crisis (2007-2009)
The Bottom Line
Some economists contend, perhaps justifiably, that many of our economic problems are indirectly related to 9/11 - the wars in Iraq and Afghanistan, our heightened security and intelligence efforts, and the ongoing war against terrorism, are all expenses resulting from the attacks of that fateful day. (For related reading, see Black Swan Events And Investment.)