Financial pain spirals to new sectors

Ford: Terrorist attacks will limit car production

As the US strives to get back to business as normal, a whole host of different and varied firms are lining up to warn that profits will fall short of expectations.

While some companies are immediately and obviously affected by last week's terrorist attacks, many other industries will feel the repercussions for months to come.

The world's biggest company, General Electric, has already warned that, as the owner of an insurance business, it will be among firms hurt.

And there are potentially thousands of small firms - often less able to absorb an unexpected downturn - that will also be shaken by the attacks.

Immediate victims

There are the companies which are most obviously hit: the huge body of firms - mainly financial - which have lost both staff and offices in the World Trade Center and surrounding area.

Consumer confidence will fall because of the tragedy

Then there is another layer of companies already suffering as a direct result from the tragedy.

Amongst these, airlines have grabbed the headlines, with Continental airlines shedding 12,000 jobs and rival airlines cutting 20% of their flights.

Then there are the insurers - whose losses have been described as incalculable - with Lloyd's of London cautioning that it may be years before the total claims bill is known.

Ten of the world's largest insurance companies have made preliminary estimates of their liabilities, but the overall figure is still only guesswork, with early estimates varying between $15bn and $30bn.

Shopping power

Then comes the long list of companies indirectly affected.

The leisure industry also suffers from national disasters

Airlines are suffering now - Boeing will suffer a sharp fall in jet airliner deliveries in 2002 and 2003, investment banks have warned.

Many of the firms indirectly affected will be in the retail sector.

Bluntly put, people spend less money when tragedy strikes.

And the added uncertainty over how or when the US will retaliate reinforces the instinct to stop spending money.

Key link

While commenting on shopping habits following the atrocities may seem crass, the link between consumer spending and the health of the economy is crucial.

Many observers say the strong consumer industry has been key in preventing the US slipping into a fully blown recession.

Out of the ailing retail industries, the sellers of luxury and non-essential goods will suffer most when consumer confidence is knocked.

The leisure industry - hotels, cinema, sport and tourism - can also expect a contraction.

Theme parks are closing for a short period, and some films being made may appear offensive in the light of recent events.

Morton's Restaurant has already warned that reduced business travel will contribute to a third quarter loss at the group.

And Toronto-based Fairmont Hotels and Resorts, an operator of luxury hotels, has said that it expects to lower its earnings forecasts.

The knock-on effect

And if the retail sector is hit, the manufacturing sector will then begin to feel the knock-on effect.

Luxury goods are often the hardest hit

There are also companies which, to an outsider, will not seem to have any link at all to troubles caused by the terrorist attacks.

But the companies themselves will see it differently, and spot the specific circumstances that will cause difficulties.

The carmaker Ford, for example, has already warned that disturbances in transportation has hampered delivery of components, forcing it to cut its car production and miss profits targets for the third quarter of the year.

Other companies whose exposure to the implications of the attacks might not seem so obvious include US news and information company Gannett and heavy construction firm Insituform Technologies, which have both warned of tough times ahead.

The advertising sector is also set to suffer more gloom, with many adverts no longer deemed appropriate and being withdrawn.

Kraft foods for example is checking all adverts to see if they are offensive, Coca-cola has halted all advertising broadcasts in the US, and many cars raced without logos at the Italian Grand Prix on Sunday.

Hurting the stock market

But while a string of profit warnings looks likely to be on the cards, the economy - and many companies - were already in a bad state before the attacks.

Cinemas and film makers may struggle

And the terrorist attacks could - in some instances - cover up for a weak underlying performance.

With a wave of profit warnings on its way, the stock markets could be in for a rough ride.

When a company warns on its profits, it is intended to be a safeguard against sharp moves in share prices.

By telling shareholders in advance that the firm is no longer on track, investors will not be shocked into a mass sell-off when the firm's financial results are released.

But when profit warnings come in groups - as seen in the technology sector earlier this year - the string of warnings can set the direction of the whole market, and only worsen the sector's difficulties.