When America was attacked by Islamic terrorists on September 11, 2001, the entire business community felt the blow. Stock markets immediately nosedived, and almost every sector of the economy was damaged economically. The U.S. economy was already suffering through a moderate recession following the dotcom bubble, and the terrorist attacks added further injury to the struggling business community.

Miraculously, however, the markets 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.

Key Takeaways

  • The 9/11 terrorist attacks on America caused significant economic damage in the immediate aftermath, rippling through global financial markets.
  • Airlines and insurance companies took the hardest immediate hit, and U.S. stock markets initially fell more than 10% in the days after.
  • Despite its lasting impact on the American psyche, the economic and financial impact of 9/11 was fairly muted, with markets bouncing back months after to new highs.
  • This was helped, in part, by a resilient American economy along with support and stimulus from the federal government.

Market Reaction

Anticipating market chaos, panic selling and a disastrous loss of value in the wake of the attacks, the NYSE and the Nasdaq remained closed until September 17, the longest shutdown since 1933. Moreover, many trading, brokerage, and other financial firms had offices in the World Trade Center and were unable to function in the wake of the tragic loss of life and collapse of both towers.

On the first day of NYSE trading after 9/11, the market fell 684 points, a 7.1% decline, setting a record at the time for the biggest loss in exchange history for one trading day (this has since been eclipsed by the market reaction during the global coronavirus pandemic). At the close of trading that Friday, ending a week that saw the biggest losses in NYSE history, the Dow Jones was down almost 1,370 points, representing a loss of over 14%. The Standard and Poor's (S&P) index lost 11.6%. An estimated $1.4 trillion in value was lost in those five days of trading.

Major stock sell-offs hit the airline and insurance sectors as anticipated when trading resumed. Hardest hit were American Airlines and United Airlines, carriers whose planes were hijacked for the terrorist attacks. 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.

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.

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. As a result of the fallout from the 9/11 attacks on the insurance industry, the Terrorism Risk Insurance Act was passed to share losses between the federal government and insurance industry. This legislation became necessary as premiums were becoming too costly or simply unavailable due to perceptions of increased risk.

No financial formula can perfectly gauge the risks of a terrorist attack in terms of the scope of damage. Following 9/11, many insurance companies were refusing to cover damages stemming from terrorist activities.

With the structure of the Terrorism Risk Insurance Act, insurers once again included terrorism insurance as a part of their coverage. Without this legislation, the cost of coverage against terrorism acts would be too steep for most businesses to purchase.

Similar steep declines hit the travel, tourism, hospitality, entertainment and financial services sectors, as a wave of temporary fear and uncertainty swept through the nation. Among the financial services giants with the steepest drops in share prices—Merrill Lynch lost 11.5%, and Morgan Stanley lost 13%.

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.

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.

9/11 Not to Blame

The U.S. economy is legendary for its strength and resilience, and the national character is persistently optimistic. No more than weeks had elapsed before the Dow Jones, the Nasdaq and the S&P had regained its pre-9/11 price levels. 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.

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.