Screeching To A Halt

Shhh. it's supposed to be a surprise. On Oct. 4, Terri and Ed Trombley planned to wake their two daughters--Kathleen, 5, and Laura, 10--and announce: "Come on, we're going to Disney World!" They'd board a plane and be hangin' with Mickey by nightfall. But their plans changed on Sept. 11. "I don't want to be near a plane," says Terri. "I don't want to be away from home. And part of me would feel guilty about having a lot of fun." The family hopes to take the trip next June. "Losing a family vacation is minute compared to what some people have lost," says Terri.

It's a sentiment that can't be overstated: amid unimaginable bloodshed, it's hard to feel too upset about red ink. But as the nation got back to work last week, it became clear just how dramatically the economic landscape has changed. Nervous investors dealt the stock market its biggest one-day point drop in history, with the Dow down 14 percent for the week. America's economy has been in slo-mo, teetering near recession for months. But the terror attacks have apparently struck such a blow to consumer confidence that most experts see an economy that's fallen over the edge. Last week 82 percent of economists surveyed by Blue Chip Economic Indicators acknowledged that the United States is in a recession. "Trying to guess at the depth and duration is just that--a guess," says Conference Board economist Ken Goldstein.

Even if, as Alan Greenspan told Congress, the terror attacks don't change the economy's long-term growth prospects, there's no regaining the business that's already been lost. When the terrorists struck, consumers retreated to TV sets, businesses closed and mall traffic dropped by two thirds, according to retail analysts at RCT Systems. As that first week progressed, shoppers returned selectively. Many stores reported surging sales of end-of-the-world goods like guns, batteries and bottled water. At the Wal-Mart in Uniondale, N.Y., the hot items were socks, underwear, flashlights and gloves--many of them being donated to rescue crews in Manhattan. By that weekend, mall traffic had returned to normal, but economists agree that shaken consumers will pull back on big-ticket purchases. Car dealerships have become ghost towns; auto sales could fall 20 percent for the month.

Nervous consumers are dealing a stronger blow to the airlines. Businesses had already slashed travel budgets by 40 percent since January; as a result, airlines expected to lose $3.5 billion this year even before September's horrors. But since the hijackings, airline bookings have been off 50 percent or more, and most airlines will cut schedules by 20 percent to accommodate tighter security. The result: airlines now expect to lose $5 billion this month, and many experts say that even with the $15 billion federal cash-and-loan bailout, already-weak carriers like America West and US Airways will likely face bankruptcy. Within days of the terrorist strikes, airlines announced plans to lay off more than 80,000 workers. "This is a burst of job-cutting from one industry that's unlike anything that's ever occurred," says outplacement consultant John Challenger.

As the airlines and their laid-off workers suffer, the pain will spread. "There is a whole structure of this economy that rests on air travel," Greenspan says. Occupancy rates in many hotels have fallen below 20 percent; the consulting firm PriceWaterhouseCoopers says the hospitality industry's fourth-quarter results could be the worst it's seen in 33 years. At Chicago's Signature Room at the 95th--sitting atop the John Hancock Center, it's the world's tallest restaurant now that Windows on the World lies in rubble--business dropped by half. Local economies will be hit hard, too. Boeing says it plans to lay off up to 30,000 employees as orders from airlines dry up. As those cuts affect other local employers, Seattle economist Dick Conway figures the region could lose 54,000 jobs.

Optimists will have to look hard to find any silver linings. As demand for travel plummets, some good vacation deals are emerging. Some industries are experiencing an unexpected post-attack boom. Mobile-phone sales are up, driven by people who want to stay in closer contact. Life-insurance agents have been signing up customers awakened to their mortality. Amtrak is carrying 17 percent more passengers, as people shun air travel. Defense companies could prosper from a long military campaign. BioPort Corp., the Michigan company that manufactures the anthrax vaccine, has been besieged by callers who want to get inoculated (no dice: BioPort is required to meet the military's demand first).

Investors watching the market swoon may be more interested in painkillers. According to one joke making the rounds, Americans' 401(k)s have lost so much value that Congress has decided to rename them 201(k)s. Some stockholders aren't laughing. Joe Becker, a 35-year-old project manager in Cincinnati, has seen some of his stocks drop by 35 percent, and he's postponed shopping for a house. "With all that's gone on and with what might happen, I want to hold on to my money right now," Becker says.

We'll find out how pervasive that feeling is when researchers release the new consumer-confidence surveys this week. Most experts expect big drops. But in Washington, policymakers are working to devise ways to offset that weakening. "We're looking at every possible stimulus to move [the economy] along," Commerce Secretary Donald Evans told NEWSWEEK. The new moves, which could include cuts in capital-gains and payroll taxes, would be in addition to the $40 billion aid package already passed by Congress. With all these boosts, says Bank One economist Diane Swonk, "we now have this stage set for 2002 that is stronger than anyone could have imagined."

Although Americans may find it hard to follow President George W. Bush's order to go about business as usual, many are doing the best they can. Nobody said it will be easy--just ask the folks in the Sears Tower, who spontaneously evacuated last Thursday when (false) rumors spread of another plane hijacking. But others are convinced it's the right thing to do. Don Martelli flew last week to make his fifth trip to Disney World with his fiancee. "The most patriotic thing I can do is keep moving forward with our plans," he says. Robert Griggs of St. Charles, Mo., flew to Chicago on business and may buy 1,000 shares of Cisco as a show of support for the market. "The military, the police, the firemen, they all have their jobs to do," Griggs says. "Our job is business as usual. That's patriotism." In the months ahead, there may be no sound more patriotic than a ringing cash register.