U.S. Economic Outlook: The Impact of Terror

1. U.S. Economic Outlook: The Impact of Terror Russell Lamb North Carolina State University Campus Box 8109 Raleigh, NC 27695-8109 Russell_Lamb@ncsu.edu http://www.ag-econ.ncsu.edu/faculty/lamb/lamb.htm

2. U.S. Economic Outlook • The situation before September 11 • Direct and indirect economic effects • Intermediate and long run outlook

3. The situation before September 11 • A slowdown in the U.S.

4. U.S. GDP Growth Percent Change , SAAR

5. Payroll Employment Growth Thousands of Jobs

6. Inventory Investment, Change Billions of 1996 Dollars

7. Business Fixed Investment Percent Change, SAAR

8. Equipment and Software Percent Change, SAAR

9. The situation before September 11 • A slowdown in the U.S. • A weaker world outlook

10. World Economic Outlook GDP Forecasts 2001* 1999 2000* World 3.5 4.8 3.2 U.S. 4.2 5.0 1.5 E.U. 2.6 3.4 2.4 Japan 0.8 1.7 0.6 Dev. Asia 6.1 6.9 5.9 Canada 4.5 4.7 2.3 Mexico 3.8 6.9 3.5 * Forecasts as of May 2001 Source: IMF, World Economic Outlook

11. The situation before September 11 • A slowdown in the U.S. • A weaker world outlook • But hope for a fairly quick recovery

12. Personal Consumption Expenditures Percent Change, SAAR

13. Residential Investment Percent Change, SAAR

14. New Home Sales Percent Change, SAAR

15. Consumer Price Inflation Percent Change from Year Earlier CPI Core - CPI

16. Interest Rates Percent Daily Fed Funds Rate Through 9/16

17. Trade Deficit Billions of 1996 dollars

18. U.S. Economic Outlook • The situation before September 11 • Direct and indirect economic effects

19. Direct economic impact: Sept.$25 Billion total Billions of $ Source: RFA/Economy.com

20. Direct economic impact: Recession Percent Change , SAAR Source: DRI-WEFA

21. Personal Consumption Expenditures Percent Change, SAAR

22. Business Fixed Investment Percent Change, SAAR

23. U.S. Economic Outlook • The situation before September 11 • Direct and indirect economic effects • Intermediate and long run outlook

24. Intermediate and long run outlook • The federal government has responded with aggressive fiscal and monetary policy. • The Federal Reserve lowered its target for the fed funds rate to 3.00 % • Federal reserve has pumped $100 billion in liquidity into the banking system • Congress passed legislation approving $40 billion for cleanup/recovery/security and an additional $15 billion for airlines • By one measure, this is more than the immediate economic impact of the disaster.

25. Intermediate and long run outlook • The federal government has responded with both fiscal and monetary policy. • The key to the outlook is the consumer sector. Will household spending pull back generating a second wave of falling profits, and a recessionary spiral?

26. How will the consumer respond? • Consumer confidence was plummeting before September 11, in response to a weak employment picture and declines in stock market wealth. • Further job losses are on the way, adding to a weak employment picture. U.S. based airlines have already cut 80,000 jobs, and more may be coming. Firms in lower Manhattan will see job losses as well. The economic slowdown will lead to more widespread job losses. • In spite of Federal Reserve moves, and a lowering of interest rates by European and UK central banks, the stock market had its worst week ever, losing 12-14 % of its value, wiping out $1.4 trillion in equity.

27. Addendum: What does it mean for Ag? • A jittery consumer will mean less spending, all the way around. Families will save in anticipation of an economic slowdown. • Less spending means consumers are less likely to eat out, hurting food-away-from-home consumption. • Domestic demand for ag products will be dampened by the downturn.

28. Addendum: What does it mean for Ag? • A weakening U.S. economy usually means a falling dollar, as investors lose interest in U.S. markets and interest rates fall from monetary policy actions. • At this point, declines in U.S. interest rates are being matched by declines in rates abroad, in the ER, UK, Canada, and Japan. • There is no visible decline in the value of the dollar. The U.S. dollar remains the world’s currency of choice. • Ag exports will not benefit from a weaker dollar in the near term.

29. U.S. Economic Outlook • The situation before September 11 • Direct and indirect economic effects • Intermediate and long run outlook

30. U.S. Economic Outlook: The Impact of Terror Russell Lamb North Carolina State University Campus Box 8109 Raleigh, NC 27695-8109 Russell_Lamb@ncsu.edu http://www.ag-econ.ncsu.edu/faculty/lamb/lamb.htm