Share this article

print logo


Gazing at ground zero, business people and economists see much more than the rubble that was once the nation's financial hub. They see a badly wounded national economy that will take many months -- and in New York State's case, years -- to rebuild.

The damage, they say, goes far beyond airline layoffs and empty hotels. Nearly every industry and every part of the country, including Western New York, is likely to suffer.

Many economists now predict a nationwide recession -- and locally, it looks as if the recession already has begun. The Buffalo area lost 1,100 jobs in the past year, and all those job losses came before Sept. 11.

Now even companies that might ultimately benefit during wartime are hurting.

Local defense contractors such as Moog Inc. and Astronics Corp. also make parts for the commercial aviation industry, which is in the midst of huge cutbacks. As a result, Astronics is losing business as its commercial customers cancel their parts orders.

"It's a bloody mess," said Peter Gundermann, president of Astronics' aerospace and electronics business in East Aurora.

Gundermann was talking about the commercial aviation industry, but he might just as well have been talking about the entire national economy. Economists stress that America's long-term prospects are as strong as they were on Sept. 10, and many forecast a strong recovery next year. But the attacks on the World Trade Center and the Pentagon have countless immediate economic implications, including:

Shattered consumer confidence, which could hurt every industry that depends on the average American to buy its products. That includes Buffalo's biggest generator of private jobs, the auto industry.

A $1 billion hole in the New York State budget that's likely to grow and that's likely to thwart any further efforts to cut the high taxes that have hampered the upstate economy for years.

Vast job losses at the bottom rung of the economy, where many part-timers and illegal immigrants will find themselves without the safety net of unemployment insurance.

Adding it all up, economists and politicians see a rough few months for the American economy, on the local, state and national levels.

"I don't think you can underestimate the short-term loss," said Sen. Hillary Rodham Clinton, a New York Democrat.

You can't underestimate the short-term loss at the Buffalo Convention Center, where three major conventions were canceled after the attacks, or at local hotels, which have had to lay off staff.

Blame it on the sudden collapse of America's willingness to spend. The Conference Board, a business group that surveys consumer attitudes, last week reported the biggest drop in consumer confidence since the 1990 recession.

It couldn't happen at a worse time for the Buffalo area, which was mired in stagnation for years before slumping this spring. August was the fifth consecutive month of year-to-year job losses in the region, thanks largely to a slowdown in manufacturing. Now that local slump -- the worst in eight years -- is likely to continue.

"This has sped up the slowdown we've been experiencing," said Richard Deitz, the regional economist at the Federal Reserve's Buffalo branch.

That's especially true in the service sector, which had been growing slightly before the terrorist attacks knocked the life out of the travel and hotel industries.

Business is so bad that Radisson Hotel and Suites in Cheektowaga has had to cut staff, said Richard Geiger, president of the Greater Buffalo Convention and Visitors Bureau.

Meanwhile, Lodgian, an Atlanta-based hotel company that owns the Holiday Inns in Hamburg, Grand Island and Jamestown, cut its payroll by 30 percent.

And Buffalo's Delaware North Cos. lost $6 million in revenue from the 30 airports served by its airport concessions division, CA One Services, which expects to lay off some workers and reduce hours for its remaining employees.

"We're going to have trouble until people get comfortable with flying again," Geiger said. "What this shows is that travel and tourism have a huge impact on the entire nation's economy. It affects not just the vendors and suppliers, but the people who provide uniforms and equipment, right down to the guy who drives a cab."

Auto sales weak

It also affects anyone who might want to buy a car. With consumers getting nervous about the weakening economy, auto sales were slumping even before the attacks. Then, according to J.D. Power and Associates, they tumbled 37 percent in the days after the World Trade Center was destroyed, only to pick up slightly since then.

With demand still weak, automakers will make 9 percent fewer cars and light trucks in the fourth quarter this year than they did a year ago, predicted CSM Worldwide, a Michigan firm that does production forecasting for suppliers.

That would be the lowest level of production in five years, and it could lead to job cuts and plant closings by the major automakers. That, in turn, could then echo through the parts factories that dot the Buffalo Niagara landscape, such as Delphi Harrison Thermal Systems, which employs 5,000 in Lockport, and General Motors' Tonawanda Engine Plant.

"You've got to be prepared to react," said Douglas Hoy, a Delphi Harrison spokesman.

That's just what consumers have done. They've reacted to bad news by tightening their belts.

Economists say Americans are holding off purchases -- and thus damaging the economy -- not just because of the attacks, but also because the resulting stock market decline makes them feel poorer.

Indeed, the half of Americans who own stock are poorer. Though stocks bounced back a bit last week, the huge hit they took in the first week after the attacks pushed the total value of U.S.-based stocks to their lowest level in four years, said Wilshire Associates, which does investment analysis.

In reaction, more Americans seem to be hoarding their money. Early indications are that Americans are spending only about 20 percent of the federal tax rebate they got recently, said William Gale, an economist at the Brookings Institution. They usually spend upwards of two-thirds of their tax refunds.

"You can't just tell people to go out shopping," he said.

A statewide calamity

Yet that's just what New York Mayor Rudolph W. Giuliani did following the attacks, practically begging Americans to come to the city and spend freely.

Sad to say, tightfisted consumers are just one of the city's -- and the state's -- problems.

"There's no question about it: This (attack) is going to have a greater economic impact on New York State than on any other state," said Rep. John J. LaFalce. The Town of Tonawanda Democrat has introduced a bill offering disaster assistance loans to small businesses nationwide that have suffered after the attacks.

Even with $20 billion in federal aid coming New York City's way to aid in relief efforts, economists think the statewide ripple effects of the attacks will be enormous.

Lower Manhattan, which was shut down after the explosions, accounts for about 10 percent of all the payroll earned in the state, said Kent Gardner, research director for Rochester's Center for Governmental Research.

"That 10 percent is what stopped for a week or so," Gardner said. "It's kind of chilling."

It's certainly chilling to the state coffers, which have lost $1 billion in tax revenue already. And that's just the beginning of what Gov. George E. Pataki has said will be "multiple, multiple billions" in additional costs to state taxpayers. Friday, Clinton predicted total costs approaching $100 billion.

Worse yet, some of the damage to the state budget could be permanent.

New York City leaders estimate that the city lost upwards of 150,000 jobs and 15 million square feet of office space when the twin towers collapsed. There's no way of knowing yet how many of those jobs will return and how much office space will be rebuilt -- and thus how much state income tax revenue will disappear forever.

For now, after a frantic attempt by public officials and business groups to persuade business leaders to stay in New York, there's hope that most major companies won't now flee the city in terror.

"A lot of companies have great optimism and will to stay in New York, though some are saying they may have to scale back operations," said Clinton, who has been working with Sen. Charles E. Schumer, D-N.Y., on the issue.

Nevertheless, several experts said the loss of revenue from at least some of those lost jobs -- combined with the mammoth rebuilding effort in New York City -- will push the state into a fiscal crisis.

Rainy-day fund

Heading into troubled times, the state has one big advantage. It has a $2.6 billion "rainy-day fund" that can be tapped in emergencies such as this.

"Gov. Pataki has been cautious all along" in protecting the state's finances, said Michael Wasylenko, an economist at Syracuse University.

Now, though, Pataki will have to be more cautious than ever. The new budget constraints are already forcing him to consider borrowing money for the new Center of Excellence in Bioinformatics at the University at Buffalo, rather than paying for the project outright.

Local leaders aren't counting on the state awarding any other such big projects to the Buffalo area any time soon. And they are privately worried that, in the new tight budget environment, other state programs in the region will be nickel-and-dimed to death.

"It's going to be nearly impossible to get the attention of anybody in Albany for a while," said Gardner, of the Rochester center. "It will be difficult to get any special consideration for any particular project."

Likewise, it will be difficult to cut state taxes or to obtain state aid to cut property taxes in individual school districts.

In other words, high taxes -- which many see as the root of upstate New York's economic decline -- are likely to go untouched for a while. Instead, politicians are merely talking about holding state taxes steady if possible.

"As Western New York knows all too well, we have to do everything we can to avoid tax increases," Schumer said.

A nation in recession?

Meanwhile, in Washington, there's talk of another tax cut along with new federal spending aimed at propping up a national economy that looks as if it's heading for big trouble.

About 450,000 people filed for unemployment during the week of Sept. 22. That was the most to file in one week since the end of the last recession in 1992, according to the Labor Department.

And since Sept. 22, pink slips have piled up by the tens of thousands. Boeing last week announced it was cutting 30,000 jobs, adding to several huge layoffs by the nation's airlines.

Economists say this could all be just the beginning of the worst economic downturn in two decades. In the second quarter of 1980, the nation's economic output shrank by 10 percent, recalled George L. Perry, another Brookings economist. The way things are going, he said, that could happen again in the final quarter this year.

"The near-term outlook is bad, and it could become very bad," he said.

Worse yet, the nation appears to be more poorly equipped to handle growing unemployment than it has been in any recent recession.

"The unemployment system has simply not kept up with the changes in the economy," said Christine Owens, director of public policy for the AFL-CIO.

The service sector has been the most rapidly growing part of the economy in the past decade, and many employers in that sector -- namely restaurants and hotels -- mostly hire part-time workers.

Now, union officials estimate that 100,000 such restaurant and hotel workers have lost their jobs in the past three weeks. But because many of them are part-timers -- and because others are illegal immigrants -- they won't qualify for unemployment benefits.

For that reason, employment experts worry that a deep recession will leave vast numbers of the working poor with absolutely no means of support.

"There's no question the safety net is more shredded than it used to be," said Rick McHugh, an attorney with the National Employment Law Project.

Economists are unclear as to exactly how much that safety net will be needed in the coming months. While many think the nation is already in recession, there's much debate about how deep it will be and how long it will last.

Recovery next year?

Much depends on the war on terrorism and on whether it returns to America's shores.

Assuming it doesn't, Perry, of the Brookings Institution, expects a strong recovery sometime next year.

"I don't think anything has happened that should change anyone's long-term outlook on the economy," he said.

For one thing, the reconstruction of lower Manhattan will provide vast numbers of construction jobs, and new federal spending for airport security and defense could stimulate the economy, too.

More importantly, several economists noted that the nation still has the world's strongest technology sector and many of its dominant financial institutions, along with an unmatched entrepreneurial spirit.

Economists worry most of all about that spirit being damaged by future terrorist attacks.

"You need the guy in his garage, noodling with wires and inventing something, to really get the economy pushing out," said Kevin Hassett, an economist with the American Enterprise Institute.

"The question is: Will terrorism discourage that kind of risk-taking? If it does, then the long-term damage can be great."


Employment in Metro Buffalo

               2000        2001 
January 545,600 547,400
February 548,300 549,400
March 551,000 551,600
April 554,600 554,100
May 561,000 560,600
June 562,700 561,700
July 558,000 554,600
August 555,100 554,000

Nationwide layoffs since Sept. 11

Boeing: 30,000
AMR Corp. (American, American Eagle, TWA): 20,000
United: 20,000
Delta: up to 13,000
Continental: 12,000
US Airways: 11,000
Northwest: 10,000
Textron: 2,500 (in addition to 5,000 previously announced)
America West: 2,000
Midway: 1,700 (shutting down)

Total value of U.S. stocks

     1990            $ 3.63 trillion 
1991 $ 4.70 trillion
1992 $ 5.02 trillion
1993 $ 5.45 trillion
1994 $ 5.31 trillion
1995 $ 7.09 trillion
1996 $ 8.42 trillion
1997 $10.88 trillion
1998 $13.24 trillion
1999 $16.16 trillion
2000 $14.25 trillion
Sept. 2001 $10.87 trillion

Sources: U.S. Bureau of Labor Statistics, Associated Press, Wilshire Associates.

e-mail: and

There are no comments - be the first to comment