Terrorists spent about $500,000 to attack the United States September 11, investigators believe. But coping with the attacks will cost the American economy at least $100 billion not including the costs of fighting the war.
The destruction of the World Trade Center and part of the Pentagon and the anthrax attacks that followed those tragedies sent ripples through the economy. Airlines and hotels have felt the aftershocks, as well as companies that produce such prosaic things as film, paper and toilet tissue.
Determining the exact toll of the attacks is impossible because the economy has been sluggish all year. The slowdown in the travel industry, for example, only intensified after September 11.
“The U.S. economy was headed for a recession on Sept. 10. How much of the decline since then can be traced to the events of September 11? That’s the $64,000 question,” said Ken Goldstein, an economist for the Conference Board business research group.
Or maybe it’s more like a $100 billion question. Mr. Goldstein and other economists say the direct and indirect costs of the terrorism will add up to roughly $100 billion a conservative estimate by their own admission. Some say the final cost could be several hundred billion dollars.
So far, the aviation industry has paid the biggest price. The airlines lost roughly $1.3 billion when federal regulators closed the skies for four days after September 11. The industry’s losses could hit $10.5 billion by the end of the year, according to the General Accounting Office, the auditing arm of Congress.
Air traffic has dropped about 25 percent since mid-October, and the airlines have cut schedules and more than 120,000 jobs. They are also paying millions of dollars for new security measures, such as stronger cockpit doors.
The toll for the rest of the economy mounts daily. Companies from almost every industry including many that would appear to be immune from terrorism are feeling the pain:
Kimberly-Clark Corp., which manufactures Kleenex tissue and Scott toilet paper, saw its quarterly profits fall for the first time in three years in October. The company said the drop is due to lower demand for tissues and toilet paper in hotels, airports and offices, which makes up 15 percent of its sales.
International Paper Co., the world’s top producer of paper, reported a loss of $275 million between July and October. Analysts say mounting corporate layoffs have resulted in less traffic at photocopiers in offices, resulting in less need for paper. A decline in advertising also has hurt the company, analysts say.
Eastman Kodak Co., the world’s largest photography company, saw its domestic sales drop 13 percent in the third quarter and warned investors that job cuts in the coming months are inevitable. Sales are falling because fewer tourists are snapping pictures for vacation scrapbooks and family photo albums, the company said.
Bethlehem Steel Corp. filed for bankruptcy Oct. 15. Like its brethren, the company which has provided the steel used for buildings, appliances and automobiles for almost a century was suffering before September 11, but it said orders from its customers dropped dramatically after the attacks.
Boeing Co., the world’s biggest jet manufacturer, plans to cut 20,000 to 30,000 jobs by the end of 2002. The company has experienced a sharp drop in orders for its commercial airplanes.
cMidway Airlines Corp. never resumed its flights after the federal government reopened the skies Sept. 14. The airline, in financial trouble before the attacks because of a slump in business travel, said it could not survive the travel slowdown after the attacks. Midway’s closing threw 1,700 employees out of work.
The economic pain isn’t limited to corporate boardrooms. The cost of terrorism has also become a kitchen-table issue for average Americans.
Employers have announced more than 442,900 layoffs since September 11. More layoffs were announced in October than in any other month since May 1980, the Labor Department reports.
But even if Americans manage to avoid the unemployment line, they will still pay a price for terrorism, according to University of California economist Peter Navarro.
The airlines will pass some of the new security costs to travelers, creating an unofficial “terrorism tax,” he said.
There’s also lost productivity: Every time a traveler arrives at an airport 90 minutes earlier than they would normally, between $20 and $40 an hour in productivity is wasted, Mr. Navarro estimates.
“The stakes here are simply breathtaking,” he wrote in a recent report for the Milken Institute economic research group.
Officials say they are only beginning to get a grip on the direct cost of the September 11 attacks.
Mr. Navarro estimates the price tag is around $10 billion, including $3 billion to $4.5 billion for the destruction of the World Trade Center, $385 million for the four planes that crashed and $1.3 billion in cleanup costs in New York, Washington and Pennsylvania.
A report by New York City Comptroller Alan G. Hevesi estimates the World Trade Center destruction, reconstruction and cleanup will cost the city between $90 billion and $105 billion.
“You cannot reduce to dollars and cents the losses New Yorkers have suffered just as there is no way to put a dollar value on the heroism and determination of our response,” said Mr. Hevesi, a Democrat.
There are other costs, such as the economic hardships of employees who worked in the twin towers. Many bartenders, waiters, hotel maids, sales clerks and secretaries suddenly became unemployed when their workplaces collapsed September 11.
Another cost: overtime for the rescue workers who responded to the scene of the tragedy. The New York Police Department, for example, expects to pay as much as $1.7 billion in overtime wages this year, or five times the amount it paid last year.
The Defense Department, meanwhile, estimates Pentagon repairs could cost between $720 million and $820 million.
The damaged sections of the building have to be torn down and rebuilt. It will take about 18 months to complete the work, and possibly another two years to provide furniture, fixtures and carpeting for the rebuilt sections, the department said.
Arlington County officials estimate the attack on the Pentagon cost the county government roughly $14 million, including the cost of the local fire and rescue workers who responded to the scene.
Insurance companies are expected to pick up some of the tab for the direct costs stemming from the September 11 attacks. Taxpayers are likely to pick up the rest, analysts say.
More than 18,800 World Trade Center-related commercial and personal claims worth an estimated $8.4 billion were filed by Nov. 9, according to the Disaster Insurance Information Office, an insurance industry-funded group that tracks the cost of the attacks.
The industry expects between $40 billion and $50 billion in attack-related claims to be filed. Insurance companies say they can handle the claims, but they are seeking federal assistance to continue to provide coverage against future terrorist attacks.
Rippling through the economy
Some businesses are still picking up the pieces of September 11. Others are just starting to suffer.
The attacks in New York badly damaged a major switching station for telecommunications giant Verizon Inc. The facility controls 3.5 million data circuits and 300,000 voice lines, and Verizon was forced to dispatch 3,000 technicians to restore service.
Wall Street brokerage Cantor Fitzgerald LP, meanwhile, scaled back some of its services after losing more than 700 employees or half its work force in the World Trade Center.
Northrop Grumman Corp. has stopped building two 1,900-passenger ships for a cruise company that filed for bankruptcy protection. The company, American Classic Voyages Co., said it needs to regroup after a dramatic falloff in vacation travel.
Fear of anthrax is also taking a toll. Merchants on Capitol Hill saw business ground to a halt when the U.S. House closed in mid-October after an anthrax scare. Meanwhile, emergency rooms across the country have treated a steady stream of patients who fear they have anthrax.
The scares have died down, though the U.S. Postal Service is proceeding with an expensive plan to make mail safer. The agency estimates technology to sanitize mail will cost $2.5 billion, but additional security measures will cost billions more.
Analysts say some companies may be using terrorism as a scapegoat for poor performance. In other cases, businesses have really been clobbered by a drop in consumer confidence after the attacks.
“Use your imagination as to what doesn’t get bought,” David Orr, chief economist for Wachovia Securities Inc., told the Associated Press recently.
Layoffs hit home
It is not clear how many of the 442,900 layoffs announced since September 11 stem directly from the attacks, according to Challenger, Gray & Christmas Inc., a Chicago outplacement firm that tracks layoffs.
Employers announced more than 1.2 million job cuts between Jan. 1 and Sept. 10, according to the firm.
“The events of September 11 may have intensified the layoffs, but there’s no way to know for sure,” John A. Challenger, the firm’s chief executive, said.
Baltimore hotel worker Geneva Miller didn’t expect to lose her job.
For 25 years, Ms. Miller worked at the Wyndham Inner Harbor Hotel. She performed a variety of jobs over the years, including stints in the hotel’s laundry room and at its switchboard.
Ms. Miller, 56, was given her pink slip Oct. 22. Her boss told her the hotel needed to cut costs because several meetings it planned to host this fall were canceled after September 11, she said.
Ms. Miller is divorced. Since being laid off, she has relied on her four adult children to help pay her bills.
“It is not easy to ask your children for help,” Ms. Miller told a meeting of the Hotel Employees and Restaurant Employees Union at a Baltimore church last week.
Putting more people on the unemployment rolls has put a drain on revenue for the federal government, now waging an expensive war on terrorism. Local governments are feeling the pain, too.
Many municipalities and state governments have racked up millions of dollars in unexpected expenses for extra X-ray machines, security cameras and police overtime.
In California alone, the bill could top $500 million by the end of next year.
Six weeks before the attacks, Maryland Gov. Parris N. Glendening, a Democrat, predicted his state would end the year with a $100 million budget surplus. Last month, though, Mr. Glendening slashed the budget by $205 million, saying security costs have skyrocketed and tax revenue has dropped dramatically since September 11.
Critics, however, have charged that the state’s budget problems began before September 11. The state has spent too much money on new programs in recent years, critics say.
“The local governments are going to feel the pain most,” said Anirban Basu, an economist for RESI, an economic research institute at Towson University.
Local governments do not enjoy the same borrowing power as the federal government, Mr. Basu said. And unlike the federal government, many states have balanced-budget requirements, he said.
Tax increases may be inevitable in some states, he said.
Getting a boost
Not all the news is grim. Some businesses have gotten a boost from terrorism.
Stocks in defense companies have soared as the nation begins what is expected to be a long war. Biotechnology stocks have risen in the aftermath of the anthrax scares, and more employers are hiring guards for their offices, giving the security industry a boost.
Meanwhile, arts-and-crafts businesses and similar companies have reported a jump in sales because families are spending more time with each other doing inexpensive recreational projects.
Blockbuster Inc., the world’s largest video rental chain, has predicted stronger earnings this fall because consumers are staying home more. And Campbell Soup Co.’s earnings this quarter were better than expected because Americans have stocked up on canned goods since September 11.