In the dark days after September 11th, as Americans remained glued to their television sets, economic activity slumped across the US, hitting airlines, hotels and shopping malls particularly hard.
Retail sales fell by 2.4 per cent in September. On Wall Street the markets took their biggest beating in over six decades. The US seemed to be leading a plunge into global recession. Now, five weeks on, economists are taking stock and finding that the situation is perhaps not as bleak as first thought.
Once again, the US consumer, the credit card wielder who drives two-thirds of the world's biggest economy, has mounted something of a rescue mission. Helped by sharply-lower inflation, consumer confidence has remained more upbeat than anyone expected.
Car sales soared at the end of September and have remained brisk during October, according to JP Morgan in a report on the US economy yesterday. Homeowners have rushed to refinance outstanding mortgages as interest rates tumbled to new lows. Airline traffic has recovered to 70 per cent of normal from 50 per cent. The stock markets have regained their pre-attack levels, shrugging off news of the strikes against Afghanistan and the widening anthrax scare.
In other words the economy is beginning to look as it did on September 10th. That does not mean that it is not slipping into recession. The sharp fall in retail sales last month prompted JP Morgan to revise down its forecast of growth in the July-September quarter from minus 2 per cent growth to minus 2.5 per cent.
However, as stock markets usually anticipate economic developments by six months, the recovery on Wall Street may mean that the recession will be V-shaped rather than U-shaped and recovery could be well under way by the second quarter of 2002. "If sustained, the upbeat mood in the equity market will help to cushion consumer confidence in coming months and restore earlier wealth losses," said JP Morgan. "This will help speed the economy's turnaround next year."
The magnitude of the market's rally from the lows of September is a very good omen and a "best case outcome", said Mr Rod Smyth, chief investment strategist of First Union Securities. The fact that it happened amid so much negative corporate and economic news could be credited to policy-makers, both the US government and the Federal Reserve "for giving investors enough hope for a recovery in 2002 that they are willing to ignore the bad news around them," he said.
This week, however, will be a major test for the markets as Wall Street braces for an onslaught of downbeat corporate earnings reports. Some 180 of the Standard & Poor's 500 companies post their third-quarter results which could be the worst for a decade, according to research firm Thomson Financial/First Call. Intel, Nortel and IMB are among the companies with major investments in Ireland which will be reporting amid new concerns about microchip sales.
Gannett, publisher of USA Today and 96 other daily newspapers, set the tone yesterday with the revelation that its third-quarter profits fell 16 per cent, partly due to a weakness in advertising exacerbated by the September 11th attacks.
A slightly encouraging sign for the economy was that businesses whittled down their inventories in August as sales edged up slightly, according to the US Commerce Department. The economy suffered earlier this year from a massive build up of unsold goods. The 0.1 per cent decline in August inventories followed a 0.5 per cent decrease in July. In September sales declined but manufacturing also suffered due to stalled deliveries when planes were grounded and borders closed in the days immediately after September 11th.
