September 9, 2011
There was an immediate impact to the economy from the September 11, 2001, attacks, especially in New York but across the nation. There were some 400 businesses in the destroyed World Trade Center; many lost employees, and more than 1,000 businesses in the area that were forced to close. Air travel was suspended, the New York Stock Exchange was closed for four days, and consumer confidence plummeted. Economists quickly lowered their forecasts for GDP growth.
The forecasters were too pessimistic. Most businesses relocated quickly. The mild recession that began six months before the attacks ended in the 2001 fourth quarter. Lost economic output accounted for just one percent of U.S. GDP, or slightly more than $100 billion, according to the Center for Risk and Economic Analysis of Terrorism Events, which was created after the September 11 attacks. Losses in New York City were $14 billion, 1.2 percent of Gross Regional Product. “I would have expected it to be twice that,” Adam Rose, the Center’s coordinator for economics, told The Fiscal Times.
But the impact on certain industries was huge -- and continues. Insurance companies faced about $33 billion in insured losses, or $40 billion in 2010 dollars. Airlines, in a weak financial position before the attacks, lost $7 billion in 2001 as business and leisure travel declined. In the decade through 2010, passenger carriers posted a cumulative loss of $63 billion. The travel industry estimates hotels, restaurants, retailers and others lost more than $600 billion in revenue over the last decade as international visitors stayed away from the U.S. Las Vegas and Reno, Nev., and Myrtle Beach, S.C., were among the cities that lost business and jobs.
Some 200 insurers shared in the losses. Of the $33 billion in insured losses, about a third were property claims, a third were for business interruption, and the remainder were liability (including aviation), workers’ compensation, event cancellation, and life insurance – which were just 3 percent of the total, $1.2 billion. Property claims for the World Trade Center buildings are still being litigated and are expected to result in payouts of between $3 billion and $6 billion. The major issue in dispute is whether two planes crashing into the towers constitute one incident or two.
The financial impact of the attacks forced the industry to reconsider how it looks at risk. “Nobody had imagined anything on the scale of 9-11,” said Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute. Prior to 2001, terrorism insurance didn’t exist as a separate category but was included as part of standard commercial policies. Some 61 percent of companies purchased terrorism insurance in 2009, including 80 percent of utilities, according to a 2010 report from the Institute. Power plants, ports, airports, sports stadiums, shopping malls, and “almost every tourist attraction you can think of” are insured, Robert Hartwig, president of the Institute said in a video on its website. “Everyone who wants terrorism insurance can get it.”
In November 2002, Congress passed the Terrorism Risk and Insurance Act, creating a program under which the government would share the cost of large claims.
Airlines lost $1.4 billion in revenue in the four-day shutdown of aviation system after attacks. The four planes that were involved were valued at $385 million. Travelers stayed away from air travel as increased security measures created a hassle factor, especially for short trips. The number of passengers traveling less than 250 miles fell 45 percent. Employment fell by 30 percent, or 165,000 jobs. Thirty-nine carriers filed for bankruptcy protection, according to the Air Travel Association.
But it’s hard to separate the effects of the terrorist attacks from other factors. Fuel costs rose dramatically over that period, in part because of tension in the Middle East, while competitive pressures kept airfares low. The recession before the attacks and the financial crisis and the recession that followed at the end of the decade put a big dent in consumer spending. After the attacks, the government stepped in to help the industry with $5 billion in short-term assistance and $10 billion in loan guarantees.
The U.S. Travel Association, a trade group for the travel and tourism industry, calls the years from 2001 through 2010 “the lost decade.” While international travel spending grew by 87 percent globally from 2000 through 2009, it was just 13 percent in the U.S., with declines in the years following the attacks. Travel to the U.S. from overseas was at its highest level ever in 2000 with close to 60 million visitors, says Geoff Freeman, executive director; it took 10 years to get back to that level. The USTA estimates 68 million lost visitors, $606 billion in lost spending and 467,000 lost jobs.
“Americans have paid an extremely heavy price,” Freeman says, because there is a perception that the U.S. no longer welcomes foreign visitors. It can take three months for a Brazilian to get a tourist visa to enter the U.S., he says, while there is no wait at all to go to France. He cited a 2006 global survey by the Discover America Partnership that found more travelers were afraid of U.S. immigration officials than of crime and terrorism.
Hotels, restaurants, and retailers felt the impact of the decline in tourism. In a 2002 report, the Milken Institute, a think tank in Santa Monica, Calif., estimated that hotels and motels in the areas most affected lost 123,000 jobs after the attacks and eating and drinking establishments lost 137,000 jobs. It calculated that employment in Las Vegas declined by 3.7 percent, 2.9 percent in Myrtle Beach, and 2.9 percent in New York.
But the Center for Risk and Economic Analysis of Terrorism Events concluded that overall, economic resilience overcame fear. The impact on U.S. GDP in the six years through 2006 was about a third of one percent. “Osama bin Laden has emphasized his intent to ruin the U.S. economy … the September 11 attacks on the World Trade center fell far short of this goal,” Rose and S. Brock Bromberg, a professor at Claremont-McKenna College, wrote in a 2010 report.