Economic effects arising from the September 11 attacks
Encyclopedia
Major economic effects arose from the September 11 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.
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
. Trading on the United States bond market
also ceased, with the leading government bond trader, Cantor Fitzgerald based in the World Trade Center. The New York Mercantile Exchange
was also closed for a week after the attacks.
The Federal Reserve issued a statement, saying it was "open and operating. The discount window
is available to meet liquidity needs.". The Federal Reserve added $100 billion in liquidity per day, during the three days following the attack, to help avert a financial crisis. Federal Reserve Governor Roger W. Ferguson, Jr.
, the only Governor in Washington, D.C.
on the day of the attacks, 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.
Gold prices spiked upwards, from $215.50 to $287 an ounce in London trading. Oil prices also spiked upwards. Gas prices in the United States also briefly shot up, though the spike in prices only lasted about one week.
Currency
trading continued, with the United States dollar
falling sharply against the Euro
, British pound
, and Japanese yen
. The next day, European stock markets fell sharply, including declines of 4.6% in Spain
, 8.5% in Germany
, and 5.7% on the London Stock Exchange. Stocks in the Latin America
n 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.
) 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. Shares of major reinsurers, including Swiss Re
and Baloise Insurance Group dropped by more than 10%, while shares of Swiss Life
dropped 7.8%. 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.
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. The airlines were also required to refund ticket purchases for anyone unable to fly.
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.
plummeted, causing massive losses in a sector which employed 280,000 people and generated $25 billion per year. In the week following the attack, sleepy occupancy fell below 50%, and 4,000 employees were fired. Tourism
, hotel occupancy and-in particular-flying also fell drastically across the nation.. The reluctance to fly may have been due to increased fear of a repeat attack. Suzanne Thompson, Professor of Psychology at Pomona College, California
conducted interviews of 501 people who were not direct victims of 9/11. From this, she concluded that "Most participants felt more distress (65 percent) and a stronger fear of flying (55 percent) immediately after the event than they did before the attacks."
, national defense
, and in the private sector it decreased.
economy sectors. 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.
The 9/11 attacks also had great impact on small businesses in Lower Manhattan
, located near the World Trade Center
. Approximately 18,000 small business
es 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.
Financial markets
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
(NYSE) was delayed after the first plane
American Airlines Flight 11
American Airlines Flight 11 was American Airlines' daily scheduled morning transcontinental flight from Logan International Airport, in Boston, Massachusetts, to Los Angeles International Airport, in Los Angeles, California...
crashed into the World Trade Center
World Trade Center
The original World Trade Center was a complex with seven buildings featuring landmark twin towers in Lower Manhattan, New York City, United States. The complex opened on April 4, 1973, and was destroyed in 2001 during the September 11 attacks. The site is currently being rebuilt with five new...
's north tower, and trading for the day canceled after the second plane
United Airlines Flight 175
United Airlines Flight 175 was United Airlines' daily scheduled morning transcontinental flight, from Logan International Airport in Boston, Massachusetts, to Los Angeles International Airport in Los Angeles, California...
crashed into the South Tower. NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
also canceled trading. The London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
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
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
. Trading on the United States bond market
Bond market
The bond market is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the Secondary market, usually in the form of bonds. The primary goal of the bond market is to provide a mechanism for long term funding of public and...
also ceased, with the leading government bond trader, Cantor Fitzgerald based in the World Trade Center. The New York Mercantile Exchange
New York Mercantile Exchange
The New York Mercantile Exchange is the world's largest physical commodity futures exchange. It is located at One North End Avenue in the World Financial Center in the Battery Park City section of Manhattan, New York City...
was also closed for a week after the attacks.
The Federal Reserve issued a statement, saying it was "open and operating. The discount window
Discount window
The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions...
is available to meet liquidity needs.". The Federal Reserve added $100 billion in liquidity per day, during the three days following the attack, to help avert a financial crisis. Federal Reserve Governor Roger W. Ferguson, Jr.
Roger W. Ferguson, Jr.
Roger W. Ferguson, Jr. is an American economist, who was Vice Chairman of the Board of Governors of the Federal Reserve System from 1999 to 2006 and is currently the President and Chief Executive Officer of the Teachers Insurance and Annuity Association - College Retirement Equities Fund...
, the only Governor in Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
on the day of the attacks, 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.
Gold prices spiked upwards, from $215.50 to $287 an ounce in London trading. Oil prices also spiked upwards. Gas prices in the United States also briefly shot up, though the spike in prices only lasted about one week.
Currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
trading continued, with the United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
falling sharply against the Euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
, British pound
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
, and Japanese yen
Japanese yen
The is the official currency of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling...
. The next day, European stock markets fell sharply, including declines of 4.6% in Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
, 8.5% in Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, and 5.7% on the London Stock Exchange. Stocks in the Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
n markets also plunged, with a 9.2% drop in Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
, 5.2% drop in Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
, and 5.6% decline in Mexico, before trading was halted.
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.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 AndrewHurricane Andrew
Hurricane Andrew was the third Category 5 hurricane to make landfall in the United States, after the Labor Day Hurricane of 1935 and Hurricane Camille in 1969. Andrew was the first named storm and only major hurricane of the otherwise inactive 1992 Atlantic hurricane season...
) 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
Berkshire Hathaway
Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies. The company averaged an annual growth in book value of 20.3% to its shareholders for the last 44 years,...
, Lloyd's, Swiss Re
Swiss Re
Swiss Reinsurance Company Ltd , generally known as Swiss Re, is a Swiss reinsurance company. It is the world’s second-largest reinsurer, after having acquired GE Insurance Solutions. The company has its headquarters in Zurich...
, and Munich Re
Munich Re
Munich Re Group is a reinsurance company based in Munich, Germany. It is one of the world’s leading reinsurers. ERGO, a Munich Re subsidiary, is the Group’s primary insurance arm....
, all which are reinsurers, with more than $2 billion each in losses. Shares of major reinsurers, including Swiss Re
Swiss Re
Swiss Reinsurance Company Ltd , generally known as Swiss Re, is a Swiss reinsurance company. It is the world’s second-largest reinsurer, after having acquired GE Insurance Solutions. The company has its headquarters in Zurich...
and Baloise Insurance Group dropped by more than 10%, while shares of Swiss Life
Swiss Life
The Swiss Life Group is the largest life insurance company of Switzerland. The firm is headquartered is in Zurich. The Swiss Life Group has 7,500 employees and had assets under management of approximately CHF 133 billion in 2010.-Foundation and growth:...
dropped 7.8%. 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.
Airlines and aviation
Flights were grounded in various places across the United States and CanadaCanada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
that did not necessarily have the operational support in place, such as dedicated ground crews. A large number of transatlantic flights landed in Gander
Gander International Airport
Gander International Airport is located in Gander, Newfoundland and Labrador, Canada, and is currently run by the Gander Airport Authority. Canadian Forces Base Gander shares the airfield but is a separate entity from the airport.-Early years and prominence:...
in Newfoundland
Newfoundland and Labrador
Newfoundland and Labrador is the easternmost province of Canada. Situated in the country's Atlantic region, it incorporates the island of Newfoundland and mainland Labrador with a combined area of . As of April 2011, the province's estimated population is 508,400...
and in Halifax, Nova Scotia
Nova Scotia
Nova Scotia is one of Canada's three Maritime provinces and is the most populous province in Atlantic Canada. The name of the province is Latin for "New Scotland," but "Nova Scotia" is the recognized, English-language name of the province. The provincial capital is Halifax. Nova Scotia is the...
, with the logistics handled by Transport Canada
Transport Canada
Transport Canada is the department within the government of Canada which is responsible for developing regulations, policies and services of transportation in Canada. It is part of the Transportation, Infrastructure and Communities portfolio...
in Operation Yellow Ribbon
Operation Yellow Ribbon
Operation Yellow Ribbon was commenced by Transport Canada to handle the diversion of civilian airline flights in response to the September 11 attacks in 2001. Canada’s goal was to ensure that potentially destructive air traffic be removed from U.S. airspace as quickly as possible, and away from...
. To help with immediate needs for victims' families, United Airlines
United Airlines
United Air Lines, Inc., is the world's largest airline with 86,852 employees United Air Lines, Inc., is the world's largest airline with 86,852 employees United Air Lines, Inc., is the world's largest airline with 86,852 employees (which includes the entire holding company United Continental...
and American Airlines
American Airlines
American Airlines, Inc. is the world's fourth-largest airline in passenger miles transported and operating revenues. American Airlines is a subsidiary of the AMR Corporation and is headquartered in Fort Worth, Texas adjacent to its largest hub at Dallas/Fort Worth International Airport...
both provided initial payments of $25,000. The airlines were also required to refund ticket purchases for anyone unable to fly.
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
Midway Airlines
Midway Airlines was the name of two different, defunct airlines:*Midway Airlines , airline based in Chicago, Illinois and operating out of Chicago Midway International Airport between 1976 and 1991...
, 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.
Tourism
Tourism in New York CityNew York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
plummeted, causing massive losses in a sector which employed 280,000 people and generated $25 billion per year. In the week following the attack, sleepy occupancy fell below 50%, and 4,000 employees were fired. Tourism
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
, hotel occupancy and-in particular-flying also fell drastically across the nation.. The reluctance to fly may have been due to increased fear of a repeat attack. Suzanne Thompson, Professor of Psychology at Pomona College, California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
conducted interviews of 501 people who were not direct victims of 9/11. From this, she concluded that "Most participants felt more distress (65 percent) and a stronger fear of flying (55 percent) immediately after the event than they did before the attacks."
Security
Since the 9/11 attacks, substantial resources have been put towards improving security, in the areas of homeland securityHomeland security
Homeland security is an umbrella term for security efforts to protect states against terrorist activity. Specifically, is a concerted national effort to prevent terrorist attacks within the U.S., reduce America’s vulnerability to terrorism, and minimize the damage and recover from attacks that do...
, national defense
Defense (military)
Defense has several uses in the sphere of military application.Personal defense implies measures taken by individual soldiers in protecting themselves whether by use of protective materials such as armor, or field construction of trenches or a bunker, or by using weapons that prevent the enemy...
, and in the private sector it decreased.
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 exportExport
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
economy sectors. 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
Government of New York City
The government of New York City is organized under the City Charter and provides for a "strong" mayor-council system. The government of New York is more centralized than that of most other U.S...
in September 2001, and $10.5 billion in early 2002 for economic development and infrastructure needs.
The 9/11 attacks also had great impact on small businesses in Lower Manhattan
Lower Manhattan
Lower Manhattan is the southernmost part of the island of Manhattan, the main island and center of business and government of the City of New York...
, located near the World Trade Center
World Trade Center
The original World Trade Center was a complex with seven buildings featuring landmark twin towers in Lower Manhattan, New York City, United States. The complex opened on April 4, 1973, and was destroyed in 2001 during the September 11 attacks. The site is currently being rebuilt with five new...
. Approximately 18,000 small business
Small business
A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships...
es were destroyed or displaced after the attacks. The Small Business Administration
Small Business Administration
The Small Business Administration is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses...
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.
Indirect effects
The September 11 attacks also led indirectly to the U.S. wars in Afghanistan and Iraq, as well as additional homeland security spending, totaling at least $5 trillion.External links
- Attack Gave a Devastating Shove to the City's Teetering Economy, The New York Times, September 8, 2002
- As Companies Scatter, Doubts on Return of Financial District, The New York Times, September 16, 2002