Post-crisis Consumer Spending: 9/11 Crisis
The overall US economy was negatively affected by the attacks of September 11, 2001. Industries hit the hardest included the airline industry and the insurance industry. Globally, US trade partners were also affected, although for a short time. Two industries profited from the attacks: the oil and gas industry, where the affects were short-lived, and the defense and weaponry industry, where the profits lasted more than a decade.
Overall US Economy
- The 9/11 attacks had a negative impact on the US economy as a whole, and worsened the 2001 recession, which was already underway at the time of the attacks.
- The overall US economy contracted by 1.7% in the third quarter of 2001 (when the affects of the September 11th attacks occurred). This was, in part, due to the closing of the stock market for six days after the attacks, and then the sharp decrease in stock values when the market reopened. This resulted in an overall "$1.4 trillion in value was lost" during the first five days of trading following the closure.
- The overall economy began to recover in the fourth quarter of 2001, seeing 1.1% growth. However, the stock market took 48 months (mid 2006) to recover from the low (occurring at the end of 2002) following 9/11.
- The airline industry was directly impacted by the 9/11 attacks, both due to a decrease in demand for airline travel as well as a decrease in the stock price. This was obviously due to the fact that airplanes were used as the weapon in the attacks.
- On the stock market, after the attacks, there were major sell-offs of airline stock. For example, "American Airlines, Inc. (NYSE: AMR) stock dropped from a $29.70 per share close of September 11 to $18.00 per share close on September 17, a 39% decline. United Airlines, Inc. (NYSE: UAL) stock dropped from $30.82 per share close to $17.50 per share on the close on September 17, a 42% decline."
- The US government "grounded the commercial fleet for three days that resulted in a 31.6 percent reduction in travel volume in September of 2001 compared to that same month in 2000 and generated massive industry losses." Additionally, the US Congress created enhanced security regulations for the industry, resulting in increased costs.
- It took the airline industry three years (till July 2004) to "match and finally surpass the pre 9/11 levels" of passengers.
- Airline stocks took much longer to recover, precisely 17 years: "NYSE Airline Index closed on September 10, 2001 at $116.97, re-opened September 17, 2011 at $69.85, and eventually bottomed just above $14 in March 2009. As of the market close on Wednesday, the index was at $118.12." This was obviously delayed due to the overall economic downturn of 2008.
- The insurance industry was profoundly affected by the vast amount of claims resulting from the 9/11 attacks.
- The claims totaled an estimated $40 billion, the most ever recorded, due to lost life and property.
- While insurers had the financial ability to pay, many tried to absolve themselves of that responsibility by arguing that the attacks were "acts of war." Eventually, however, they decided this would not hold up in court.
- The insurance industry then asked the federal government for assistance, an unprecedented move.
- Most insurers were able to remain in business without major long term losses, mostly because they either left the terrorism coverage marketplace or provided very limited coverage. The federal government enacted the Terrorism Risk Insurance Act (TRIA) in 2002, which provided "temporary backstop for public and private sharing of insured losses from any future acts of terrorism in the United States" and calmed the insurance market.
Gas and Oil Market
- Directly after the 9/11 attacks, gas and oil prices sharply increased.
- This was due to concerns that the supply of gas and oil from the Middle East would be interrupted.
- However, the prices quickly dropped back to normal levels within a week due to the fact that no interruption in supply occurred.
Defense and Weaponry Industry
- The defense and weaponry industry profited from the 9/11 attacks as military spending increased for the War on Terror.
- Directly after Sept 11, "President Bush requested the largest increase in defense spending in two decades." Specifically, companies like Boeing, Raytheon, Alliant Techsystems, Lockheed Martin and many more increased their production for the US government and homeland security. Stock increases were as follows: Raytheon (+37%), L-3 Communications (+35.8%), Alliant Techsystems (+23.5%), and Northrop Grumman (+21.2%), and more.
- The increase in spending lasted over a decade; American spent $7 trillion on the Department of Defense in the decade following 9/11.