At a time of great uncertainty throughout the US, there is consensus on at least one issue; that the already ailing economy is now moving into recession.

Pundits are divided on whether it will be a short shallow downturn or whether the tragic events of September 11th 2001 will mark the beginning of a lengthy global economic slump. Everyone is, however, braced for leaner times.

Economists are busily examining the impact of events such as the attack on Pearl Harbour, the US involvement in the second World War and the Vietnam and Gulf Wars on the US economy, for clues as to the most likely fallout from the terrorist attacks on New York and Washington two weeks ago.

There is optimism that increased government spending, further reductions in US interest rates and more tax cuts will be sufficient to support a quick economic recovery.

But the crucial difference between past events and today is the impact on the entire American population of a terrorist attack that has left more than 6,000 people missing or dead. The confidence with which consumers spend their money has been shattered and there are no pointers to suggest when or to what extent this can be restored.

This week US Treasury Secretary, Mr Paul O'Neill, who had initially played down the economic impact of the terrorist attacks, accepted that they had hit the economy in a "resounding way" - but insisted the underlying future of the US economy is "very good".

In a BusinessWeek interview, Mr O'Neill said the tragic events of the past couple of weeks are not capable of triggering a world recession. "At the World Trade Centre site, there is maybe $10 billion to $20 billion in physical impact, maybe more. But in the context of the world economy, it's not a stopper. The same is true of the Pentagon. We can handle the Pentagon and the tip of Manhattan."

But he was realistic about the unprecedented psychological damage of the terror attacks and was unable to provide any clear guidance on the economic consequences of this assault.

"These are not inconsequential events for our economy and the world economy. We know there's going to be some damage. The question is for how long?"

The International Monetary Fund, in its flagship World Economic Outlook, published on Wednesday, forecast economic growth of just 2.6 per cent for 2001.

But this figure - only marginally ahead of the 2.5 per cent viewed by economists as a level indicative of a global recession - did not take account of the events of September 11th and was already sharply lower than an April estimate of 3.2 per cent.

IMF chief economist, Mr Kenneth Rogoff, said the attacks would significantly affect global growth before making - and subsequently withdrawing - a firm prediction that a technical recession in the US was a "done deal".

Mr Rogoff said there was still a "reasonable prospect" that recovery would begin early next year.

Many of the leading US economists have forecast that economic growth will resume in the first quarter of 2002, bolstered by government spending and interest rate and tax cut remedies.

These predictions are based on the assumption that there will be no further terrorist attacks here. If the situation worsens though, economists know that the US economy will prove no more able to attract business investment and fuel economic growth than other countries affected by terrorism.

Retaliation by the US is likely to be the most expensive war ever fought by the country, given the scale and period time that are being associated with waging an international and sustained attack on terrorism. Estimates suggest the actual spend could be more than the $80 billion cost of the Gulf War.

Some $55 billion in emergency spending has already been approved by Congress to finance recovery efforts in New York and Washington, to pay for the military response and to reimburse the airlines for their losses. Further spending plans will be approved in the coming weeks which are likely to see the government take what many expect will be as much as $100 billion out of its wallet.

And while such a stimulus has been welcomed, there are concerns that the impact of such massive spending may only have a very limited effect on the overall economy.

A survey tracking US consumer confidence in September showed this week that people stopped spending immediately in the wake of the attacks. It recorded the largest single such drop in one month since October 1990, during the Gulf War.

The survey - by New York-based private research group, the Conference Board - said 88 per cent of its responses were conducted before September 11th, leading many economists to conclude that October's figures will reveal an even greater decline.

Those surveyed said they expected business conditions to deteriorate further over the next six months and were less optimistic about their future earnings potential.

Massive job cuts have been announced in the past two weeks. Airlines, hotels, restaurants and the financial sector are among the early casualties.

Airlines have reported a 50 per cent drop in passengers travelling by air. Delta Air Lines was among the latest in a long line to announce job cuts and a reduction in its winter flight schedule.

Other airlines have announced about 80,000 job cuts since the attacks.

Delta spokesman, Mr Tom Donahue, said the airline has lost around $1 billion since the attacks. It is to receive $600 million from the $5 billion cash relief approved by Congress, which will help it to meet its immediate financial obligations - but the airline will need to drastically cut costs to remain viable in the future.

The hotel industry and trade unions are preparing for thousands of layoffs across the US. Estimates of between 25 per cent and 50 per cent of the Hotel Employees and Restaurant Employees International Union's 265,000 workers have been mentioned as industry representatives prepare to meet with Congress Representatives to discuss the crisis.

US hotels employs about 1.5 million workers, while many more work in restaurants. The financial sector, which had already been aggressively trimming costs, has already begun to seek further job cuts.

The actions of policymakers around the world to shore up the financial system when Wall Street opened last week offer some consolation that a downturn may be a temporary phenomenon.

In Washington, Congressional lawmakers are struggling to craft a stimulus package that would not backfire in the long run.

Mr Alan Greenspan, the Federal Reserve chairman, has been meeting with Congress to counsel the lawmakers on how to respond to the weak financial markets and rising job losses.

His advice has been to caution against a hasty response. He has warned that injecting too much money into the economy now could cause interest rates to rise and threaten America's long-term economic health.

In the meantime, monthly statistics will report the true extent of the impact of the attacks and will provide some insight into the mood of consumers. Nobody, however, can safely predict how deeply the US economy will be affected - or for how long.