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Thursday, 13 September, 2001, 15:09 GMT 16:09 UK
Will US consumer confidence fade?
US consumers have so far helped stave off recession
US consumers have so far helped stave off recession
With American people still coming to terms with Tuesday's attacks, many are now expected to be far more cautious about spending their money.

So far, the US - and world - economy has managed to escape recession, largely thanks to consumer confidence.

But even before the attacks, confidence was already sharply on the wane.

And as many businesses and shopping districts shut down across on Tuesday, some economists fear that increased consumer caution could drag the economy into recession.


I am concerned about the 69% of the economy that has been held up by the consumer

David Littmann, Commercial Bank

Some, however, argue that the Federal Reserve and US government will quickly act to pump money into the economy, boosting confidence once more.

Index slump

The attacks came at a sensitive time for the US consumer.

A regular survey released on Thursday by the University of Michigan showed that sentiment had crumbled in the weeks ahead of the attacks.

The university's index of sentiment fell from 91.5 in August to 83.6 in September, fully seven index points lower than the average forecast.

In normal times, the Michigan index is one of the most closely-watched pieces of data on the New York markets.

Business shutdown

Tuesday's attacks shook businesses across the US, with many shutting up shop for the day.

"I am 500 miles outside of New York city and businesses shut down here yesterday," said Ken Mayland, president at Clearview Economics.

" I talk to people across the country yesterday and people left work early. People are just stunned."

The Ohio-based consultancy likened the impact of Tuesday's disaster to that of the Gulf War or the death of Princess Diana.

"These events cause people to stay glued to their television sets and not venture far away from homes - so in other words, they are not in auto dealer showrooms or going out to restaurants," he said.

"[But] people will get back to the ordinary business of life."

The mood of US business is - officially at least - one of resilience.

A spokesman for the Chicago Chambers of Commerce said that while downtown Chicago may have shut down on Tuesday, early signs were that things were returning to normal on Wednesday.

The Chicago business area - the Loop - effectively shut down on Tuesday
The Chicago business area - the Loop - effectively shut down on Tuesday

Businesses shut down and sent their employees home, he told BBC News Online.

"The economy basically generates over $900m a day, the shutdown of the Loop (Chicago's business district) and pretty much all of the downtown area affected that," he said.

But the Chambers of Commerce is encouraging its members to open for business as usual.

Economist fears

One of those who believes that Tuesday's events will tighten purse strings is billionaire financier George Soros.

"There were signs that the consumer was beginning to be more cautious and this is a big shock for everyone, so I think it may affect consumption and that may then push the economy into a recession," he told reporters.

Chicago's Commercial bank economist David Littmann agrees.

"I am more concerned about the 69% of the US economy that has been held up by the consumer," he said.

"Consumer spending is going to take a hit. That is what happens when uncertainty sets in."

Clearview Economics' Mr Mayland is among those who believes the impact will be short-lived.

"Consumer confidence and consumer behaviour is going to be drastically altered for a couple of days," he said.

Crucially, he forecast that the Federal Reserve will cut rates and Congress may even lower taxes, all measures which could buoy consumer confidence.

He pointed to great natural disasters - such as Hurricane Andrew in Florida and the Northridge California earthquake - after which consumer confidence recovered.

"The third quarter may now be negative because of short-term impact, they do not derail the economy's longer-term prospects for a rebound," he said.

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Commercial Bank's David Littmann
"Consumer spending is going to take a hit"
See also:

31 Jul 01 | Business
US consumers spend on - for now
14 Aug 01 | Business
US retail figures beat forecasts
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