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Economic effects of the September 11 attacks

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Major economic effects arose from the September 11, 2001 attacks, with initial shock causing global stock markets to drop sharply. The attacks themselves caused approximately $40 billion in insurance losses, making it one of the largest insured events ever.[1]

Financial markets

Stock exchanges closed between September 10, 2001 and September 17, 2001. After the initial panic, the DJIA quickly rose for only a slight drop.

The opening of the New York Stock Exchange (NYSE) was delayed after the first plane crashed into the World Trade Center's north tower, and trading for the day canceled after the second plane crashed into the South Tower. NASDAQ also canceled trading. The London Stock Exchange and other stock exchanges were also evacuated. The New York Stock exchanges remained closed until the following Monday. This was the third time in history that the NYSE experienced prolonged closure, and first time since March 1933, though the NYSE also shut down for a few months at the beginning of World War II.[2] Trading on the United States bond market also ceased, with the leading government bond trader, Cantor Fitzgerald based in the World Trade Center.[2] The New York Mercantile Exchange was also closed for a week after the attacks.[3]

The Federal Reserve issued a statement, saying it was "open and operating. The discount window is available to meet liquidity needs."[4]. The Federal Reserve added $100 billion in liquidity per day, during the three days following the attack, to help avert a financial crisis.[3] Federal Reserve Governor Roger W. Ferguson, Jr., the only Governor in Washington, D.C. on the day of the attacks[citation needed], has described in detail this and the other actions that the Fed undertook to maintain a stable economy and offset potential disruptions arising in the financial system.[5]

Gold prices spiked upwards, from $215.50 to $287 an ounce in London trading.[2] Oil prices also spiked upwards.[6] Gas prices in the United States also briefly shot up, though the spike in prices only lasted about one week.[3]

Currency trading continued, with the United States dollar falling sharply against the Euro, British pound, and Japanese yen.[2] The next day, European stock markets fell sharply, including declines of 4.6% in Spain, 8.5% in Germany,[2] and 5.7% on the London Stock Exchange.[7] Stocks in the Latin American markets also plunged, with a 9.2% drop in Brazil, 5.2% drop in Argentina, and 5.6% decline in Mexico, before trading was halted.[2]

Economic sectors

In international and domestic markets, stocks of companies in some sectors were hit particularly hard. Travel and entertainment stocks fell, while communications, pharmaceutical and military/defense stocks rose. Online travel agencies particularly suffered, as they cater to leisure travel.[citation needed]

Insurance

Insurance losses due to 9/11 were more than one and a half times greater than the what was previously the largest disaster (Hurricane Andrew) in terms of losses. The losses included business interruption ($11.0 billion), property ($9.6 billion), liability ($7.5 billion), workers compensation ($1.8 billion), and others ($2.5 billion). The firms with the largest losses included Berkshire Hathaway, Lloyd's, Swiss Re, and Munich Re, all which are reinsurers, with more than $2 billion each in losses.[8] Shares of major reinsurers, including Swiss Re and Baloise Insurance Group dropped by more than 10%, while shares of Swiss Life dropped 7.8%.[9] Although the insurance industry held reserves that covered the 9/11 attacks, insurance companies were reluctant to continue providing coverage for future terrorist attacks. Only a few insurers offer such coverage, and it is limited and very expensive.[1]

Airlines and aviation

Flights were grounded in various places across the United States and Canada that did not necessarily have the operational support in place, such as dedicated ground crews. A large number of transatlantic flights landed in Gander in Newfoundland and in Halifax, Nova Scotia, with the logistics handled by Transport Canada in Operation Yellow Ribbon. To help with immediate needs for victims' families, United Airlines and American Airlines both provided initial payments of $25,000.[10] The airlines were also required to refund ticket purchases for anyone unable to fly.[10]

The 9/11 attacks compounded financial troubles that the airline industry already was experiencing before the attacks. Share prices of airlines and airplane manufacturers plummeted after the attacks. Midway Airlines, already on the brink of bankruptcy, shut down operations almost immediately afterwards. Other airlines were threatened with bankruptcy, and tens of thousands of layoffs were announced in the week following the attacks. To help the industry, the federal government provided an aid package to the industry, including $10 billion in loan guarantees, along with $5 billion for short-term assistance.[1]

Tourism

Tourism in New York City plummeted, causing massive losses in a sector which employed 280,000 people and generated $25 billion per year. In the week following the attack, hotel occupancy fell below 40%, and 3,000 employees were laid off. Tourism and hotel occupancy also fell drastically across the nation.[citation needed]

Security

Since the 9/11 attacks, substantial resources have been put towards improving security, in the areas of homeland security, national defense, and in the private sector.[3]

New York City

In New York City, there were approximately 430,000 lost job months and $2.8 billion in lost wages, which occurred in the three months following the 9/11 attacks. The economic effects were mainly focused on the city's export economy sectors.[11] The GDP for New York City was estimated to have declined by $27.3 billion, for the last three months of 2001 and all of 2002. The Federal government provided $11.2 billion in immediate assistance to the Government of New York City in September 2001, and $10.5 billion in early 2002 for economic development and infrastructure needs.[12]

The 9/11 attacks also had great impact on small businesses in Lower Manhattan, located near the World Trade Center. Approximately 18,000 small businesses were destroyed or displaced after the attacks. The Small Business Administration provided loans as assistance, while Community Development Block Grants and Economic Injury Disaster Loans were other ways that the Federal Government provided assistance to small business affected by the 9/11 attacks.[12]

References

  1. ^ a b c Makinen, Gail (September 27, 2002). "The Economic Effects of 9/11: A Retrospective Assessment" (PDF). Congressional Research Service. pp. CRS-4. {{cite web}}: Check date values in: |date= (help)
  2. ^ a b c d e f Norris, Floyd, Jonathan Fuerbringer (September 12, 2001). "Stocks Tumble Abroad; Exchanges in New York Never Opened for the Day". The New York Times. {{cite news}}: Check date values in: |date= (help)CS1 maint: multiple names: authors list (link)
  3. ^ a b c d Makinen, Gail (September 27, 2002). "The Economic Effects of 9/11: A Retrospective Assessment" (PDF). Congressional Research Service. pp. CRS-2. {{cite web}}: Check date values in: |date= (help)
  4. ^ "Federal Reserve Release". Federal Reserve. September 11, 2001. {{cite web}}: Check date values in: |date= (help)
  5. ^ "September 11, the Federal Reserve, and the Financial System".
  6. ^ Stevenson, Richard W., Stephen Labaton (September 12, 2001). "The Financial World Is Left Reeling by Attack". The New York Times. {{cite news}}: Check date values in: |date= (help)CS1 maint: multiple names: authors list (link)
  7. ^ "Shares suffer biggest fall since September 11 2001".
  8. ^ Hubbard, R Glenn, Bruce Deal, Peter Hess (2005). "The Economic Effects Of Federal Participation In Terrorism Risk". Risk Management & Insurance Review. 8: 177. doi:10.1111/j.1540-6296.2005.00056.x.{{cite journal}}: CS1 maint: multiple names: authors list (link)
  9. ^ Sorkin, Andrew Ross, Simon Romero (September 12, 2001). "Reinsurance Companies Wait to Sort Out Cost of Damages". The New York Times. {{cite news}}: Check date values in: |date= (help)CS1 maint: multiple names: authors list (link)
  10. ^ a b Zuckerman, Laurence (September 12, 2001). "For the First Time, the Nation's Entire Airspace Is Shut Down". The New York Times. {{cite news}}: Check date values in: |date= (help)
  11. ^ Dolfman, Michael L., Solidelle F. Wasser (2004). "9/11 and the New York City Economy". Monthly Labor Review. 127.{{cite journal}}: CS1 maint: multiple names: authors list (link)
  12. ^ a b Makinen, Gail (September 27, 2002). "The Economic Effects of 9/11: A Retrospective Assessment" (PDF). Congressional Research Service. pp. CRS-5. {{cite web}}: Check date values in: |date= (help)
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