- The Washington Times - Monday, August 18, 2003

A quarter of the nation’s economy temporarily ground to a halt during last week’s blackout, but the disruption did not last long enough to thwart the strong economic revival under way this summer, analysts said.

The nation’s critical auto plants in Detroit and across the border in Canada were among the manufacturing industries forced into a one-day shutdown Friday by the blackout in the Northeast and Great Lakes region.

The National Association of Manufacturers estimates that 26 percent of the nation’s industries lie within the affected areas. But despite the temporary cessation of assembly lines, the loss of perishable items by businesses and 50 million consumers who were temporarily immobilized by the blackout, economists see no lasting damage to the budding recovery.

“Because power is being restored relatively quickly, we do not expect the power outage to deter the economy’s growth prospects,” said Lynn Reaser, chief economist with Banc of America Capital Management. Many economists expect growth to double, to 4 percent to 5 percent, in the second half of the year.

Like the major stock exchanges on Wall Street, which quickly recovered from the blackout in trading Friday, most shuttered establishments got back to business yesterday with sometimes fitful starts.

Ms. Reaser said the upward movement of the stock markets since the massive blackout shows that investors do not expect any serious damage to the economy. The Dow Jones Industrial Average rose 91 points to 9,412 yesterday, its highest level in 14 months.

The power outages were much like a blizzard, she said, temporarily shutting down offices, postponing airline flights, halting rail service, disrupting shopping, and evenings out at restaurants and theaters. But they also caused a burst of buying on survival items such as bottled water, flashlights, batteries and candles, which will boost sales at other retailers, she said.

A lot of collateral damage from the blackout was avoided because of the calm and orderly reaction by the public, she said. Unlike in blackouts in 1965 and 1977, little looting was reported, no riots erupted and crime did not appear to rise much when the streets went dark. Insured losses, estimated at $1 billion to $2 billion, appear to be minor because of the minimal loss of property.

Emergency and contingency planning by businesses and government agencies since the September 11 attacks also appears to have paid off by facilitating a smooth response and recovery from the disruption, Ms. Reaser said.

The temporary shutdown of factories and businesses will cause a minor drop in productivity, profits, and sales during August at some companies, she said. That will show through in temporarily increased costs for labor and transportation for business and government.

Early estimates of damage to the economy from business stoppages range to as high as $5 billion, a tiny dent in the nation’s $10 trillion economy.

Despite the blackout — Mickey Levy, chief economist at Banc of America Securities, said — the economy is winding up for a surge in growth in the second half of the year, thanks in part to the latest round of tax cuts, which has put disposable cash in consumers’ pockets.

“Last week’s retail-sales release was the strongest piece of evidence yet that the U.S. expansion is reaccelerating,” he said. Mr. Levy was referring to a report the day before the blackouts that showed that consumer spending at restaurants, gas stations, theaters and malls grew at a stunning 12 percent annual rate in the past three months.

The robust sales report prompted Mr. Levy to revise his estimate of growth in the current quarter to 3.9 percent. He said that it is likely to prompt the government to raise its growth estimate for the spring quarter to 2.75 percent from 2.4 percent.

Signs of a long-awaited recovery in the hard-hit manufacturing sector also emerged in an industrial-production report that came out Friday, even as many factories were struggling to turn on the lights. It was the third straight monthly gain in production after nearly a year of losses.

Some analysts were not convinced that the blackout will have little effect on the fragile recovery.

“The economy lost however many billions of production in one day,” said David Robin, an investment strategist at Fimat USA. “It’s not a good thing in the short run.”

He said businesses and consumers are faced with the choice of conserving more energy, living with the threat of blackouts or paying more to upgrade the nation’s antiquated power grid.

“The implications are still very unclear,” he said. “Somebody is going to have to spend an awful lot of money at some point to fix the problem.”

And although the damage was light this time around, it may not be if blackouts become more frequent or long-lasting.

“It has exposed a glaring deficiency and vulnerability of our economy,” said Comerica Bank economist David Littman. “This economy runs on power.”

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