NEW YORK – The terrorist attacks on the World Trade Center and the Pentagon have undoubtedly shaken Americans’ feeling of security, but what has it done to their economic confidence? Economists have been pointing to strong consumer spending for keeping the shaky U.S. economy afloat, but this attack may have been enough to shake consumer confidence and have Americans rein in spending, said Bill Hampel, chief economist for CUNA. “When we look back on 2001 we will see there was a recession. The economy was teetering on the edge between a soft landing and recession. It wouldn’t surprise me that this is what pushed us over the edge into a recession,” said Hampel. Hampel said consumer uncertainty is an enemy of economic growth. “When there’s uncertainty people tend to pull in their horns. We’re not talking depression here, but a couple quarters of between -1 and 1% growth may be coming,” said Hampel. The economy has been growing by about 4% over the last four years. Hampel said the consensus among economists, prior to the attacks, was that the U.S. would have a soft landing this year, around 1% growth, with recovery coming early next year. “My feeling was that it may be weaker than that, and we were in a recession before this happened.” Hampel said the timing isn’t right for a lack of consumer confidence. “This happened in an economy that was pretty fragile to start out with. Had we had a booming economy the economic effect would be much less. We have no momentum. It’s easier to knock the economy off its pedestal. In unexpected times like this people engage in a flight to quality. I think U.S. Treasuries will be an attractive place to be,” said Hampel. “There is also likely to be a bit more volatility in the stock market for a while that’s so big, so atypical that some people are going to overreact,” said Hampel, who noted CUs should see more deposits as people look for safety. Hampel said that a major world event can have an effect on the economy, but any speculation of the effect of this event would be unfounded since it’s such an unprecedented event. Jeff Taylor, economist for NAFCU, said in the short term the attack will have a negative effect, but he doesn’t see it lasting too long. “For a few days people are going to be a little bit weak with spending. I don’t think it will last long. We could have another interest rate cut this week,” said Taylor. Though the next Open Market Committee meeting isn’t scheduled until October, Taylor said the attacks may spur the Fed to cut rates prior to that. “The attacks could affect the GDP numbers this quarter. The uncertainty of the short term is certainly there. Longer term prospects aren’t necessarily bleak. There will be lots of government spending for disaster relieve and the rebuilding efforts. That’s a huge amount of spending that can impact the economy.” Taylor said President Bush’s reassuring words may help ease consumers. “If you look at what happened in the Persian Gulf and after major hurricanes, there are a couple days of panicking and lethargic spending. Then things start to work out as long as there’s a positive outlook. The central banks came together, the President acted. Consumers will hold in there pretty well.” -email@example.com
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