American Spending and Output Decline as Terrorist Ripple Effect Widens

25 October 2001

The Federal Reserve’s Beige Book, an authoritative if largely anecdotal résumé of the US economy, reports weakened economic activity across the nation in the aftermath of the terrorist attacks on September 11.

Compiled on a six-weekly basis from data supplied by the US central bank’s twelve districts, the study shows both spending and output falling sharply in the weeks following the tragedy. Although there has been a subsequent rebound on both fronts, overall activity remains soft and the Fed warned that the outlook remained “highly uncertain”.

“Business activity recovered quickly from some aspects of the shock, such as reduced air cargo capacity, but longer-run effects are more difficult to assess,” the bank admitted.

In response to weakened retail spending, inflation pressures remained subdued or even non-existent, the Beige Book reports. Wages were largely holding steady and the Fed's districts reported a growing number of cases of falling prices.

Tendentiously – in view of the $15 billion airline bailout package approved by Congress last month – the report observes that “large lay-offs in the airline industry may be the result of previously observed weakness in the industry, which was then amplified by the attack”.

Across all US districts, employment was reported falling, while manufacturing overall remained weak and at risk of longer-term damage.

News source: Financial Times