- The Washington Times - Saturday, September 22, 2001

The Dow Jones Industrial Average finished its worst week ever with a 140-point drop yesterday amid a rising tide of economic woes and heightened anxieties stemming from the terrorist attacks.

The stock market's nearly $1.4 trillion loss this week came as Congress moved with unusual speed and unity to pass a $15 billion airline-rescue bill to stave off further big layoffs and bankruptcies and the White House met with insurance executives to discuss the record losses in that industry.

While most economists now say the United States is in a recession because of the blow dealt by the Sept. 11 attacks, congressional leaders said they would take a little more time to consider the measures to include in a second economic-stimulus bill to deal with the damage.

"The tragic terrorist attacks unleashed a shock to our security that could alter the economic and financial landscape for some time to come," said Richard Berner, chief U.S. economist with Morgan Stanley Dean Witter.

The disruption of commerce, destruction of wealth and drop in confidence seen just since the attacks "make recession inevitable," he said. Investors are "struggling to fathom" this reality as well as the consequence of a possible prolonged war.

The second-busiest day of trading on the New York Stock Exchange yesterday left the Dow 1,370 points lower than its close Sept. 10 at 8,236, in a record point loss. The 14.3 percent drop was the worst percentage loss since the Great Depression.

The Nasdaq Composite Index, where most technology stocks are housed, fell 3.3 percent to 1,423 and is approaching a four-year low. The Standard & Poor's 500 Index dropped below 1,000 this week for the first time in three years and ended yesterday at 966.

London's benchmark stock index and Hong Kong's Hang Seng Index both ended the week at three-year lows, while Japan's Nikkei stock index hovered near 18-year lows established in the wake of the attacks.

"This is just emotion-driven panic selling," said James Gribbell, portfolio manager at David L. Babson & Co. "Foreign investors are pulling out of the U.S., institutional investors are raising cash and retail investors are throwing in the towel."

Some investors dumped shares yesterday out of anxiety over possible U.S. military action against Afghanistan over the weekend, but recession was the overriding fear driving the market down all week.

Yesterday, the National Association of Business Economists said an overwhelming majority of its members now see a recession lasting through the end of the year, triggered by the attacks. That echoed the assessment Thursday of blue-chip economic forecasters.

The Conference Board, a business research group, released a survey yesterday showing that nearly half of American consumers now expect the terrorist attacks to push the United States into recession.

Lynn Franco, a Conference Board economist, said the rash of deep layoffs initiated by the airlines this week will heighten fears, and the job losses will take a further toll on consumer confidence and spending.

"So far, U.S. consumers have helped the economy steer clear of recession. The likelihood of this scenario continuing is dwindling as the economic ramifications from the terrorist attacks continue to unfold," she said.

Businesses linked to the travel industry, from hotels to convention centers, are reeling. But even mom-and-pop stores and shopping malls are reporting sharply lower shopping activity in the wake of the attacks.

The Conference Board survey showed that consumers also are starting to retrench financially, with 20 percent saying they will not make any new financial investments. That bodes poorly for the stock market and means a recovery is not likely to come soon, Miss Franco said.

Other polls show that fewer than half of Americans now believe it is safe to fly, demonstrating how difficult it will be for the airline sector to stay afloat. Federal Reserve Chairman Alan Greenspan warned Thursday that the nation must get the airlines back in business to prevent further economic deterioration.

The Republican and Democratic leaders of Congress' tax-writing committees met with Treasury Secretary Paul H. O'Neill to discuss legislation to shore up the economy.

The group agreed to nothing except to give economists and specialists more time to assess the damage.

Everyone in the group yesterday said they are committed to developing a united response, in sharp contrast to the approach taken when Republicans this spring drafted their first stimulus bill a $1.35 trillion tax cut without the participation of House Democrats.

Wall Street analysts say the display of bipartisanship and cooperation behind the quick enactment of the airline bill and a $40 billion rescue and retaliation package approved last week should help Americans cope with the growing toll from the tragedy.

Senate Finance Committee Chairman Max Baucus, Montana Democrat, said he hopes any second stimulus package will be focused and targeted, with a "determinate short-term effect" on the economy.

Republicans previously have offered more sweeping long-term proposals, such as a capital-gains tax cut, corporate income-tax cuts, investment tax credits and the accelerated phase-in of the tax cuts already passed.

Mr. Baucus said the capital-gains proposal did not come up in yesterday's meeting, however, "which I think is constructive." The group may decide to do nothing at all because of the huge dose of stimulus already passed.

• John Godfrey contributed to this report.

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