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Attack Gave a Devastating Shove To the City's Teetering Economy

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September 8, 2002, Section 1, Page 35Buy Reprints
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No one who has seen the physical destruction in Lower Manhattan can doubt that the attack on the World Trade Center caused deep and lasting economic wounds as well.

It devastated both big companies and small businesses in and around the twin towers. It brought business across the city to a halt for days, weeks and in some cases months, slashing workers' earnings and tax revenues alike. It made many employers determined to spread their workers over a wider swath of geography, which has ominous implications for Manhattan.

And yet, terrorists cannot be blamed for all of New York City's economic ills, any more than they can be blamed for Enron, or the bursting of the stock market bubble, or the financial turmoil in Latin America, or, for that matter, the long-running national recession. All are culprits in causing the city's economic woes.

Disentangling the effects of 9/11 from all the other threads running through the economy is so complex that some economists say flatly that it cannot be done. Economists at the Federal Reserve Bank of New York are still trying to come up with a statistical way to gauge the impact.

New York City's comptroller, William C. Thompson Jr., said last week that the attack was responsible for all of the city's job losses since last September, and then some. Of course, he assumes that the city had begun recovering from the recession in August of last year, a belief not shared by many researchers.

But economists and business experts suggest that even if many of the city's economic losses might ultimately have occurred anyway, the Sept. 11 attack compressed what might have been a relatively mild recession into a few very painful months.

''It accelerated all the negative forces in the economy,'' said Kathryn S. Wylde, president of the New York City Partnership and Chamber of Commerce. ''And it created huge barriers and obstacles to a less dramatic recession and a more natural recovery.''

Before Sept. 11, ''it was a fair statement to say that New York City had sidestepped the worst of the national recession,'' said Marc M. Goloven, an economist at J. P. Morgan. ''What 9/11 did was to take from us our momentum, which was fading but carrying us through.''

That economic momentum was particularly strong two years ago, when the city was adding new jobs at a blistering pace, often creating more new employment than any other metropolitan area in America. And New York's stubbornly high unemployment rate continued to decline sharply all the way through March of 2001, months after the national jobless rate began to rise in November 2000.

When the slowdown did hit the city, it seemed fairly mild (though not to the people who found themselves unemployed).

By May 2001, the number of jobs in the city had begun to edge down compared with the boom levels of the previous year, according to data collected by the state and federal governments. But the drop was relatively mild, and concentrated in a few industries, most of which provided services like advertising, media, consulting and financial services to big manufacturers across the country.

After Sept. 11, that all changed. The number of jobs in the city plunged by tens of thousands, and the decline continued through the winter, so that by March of this year, there were almost 135,000 fewer jobs in the city than in 2001. The unemployment rate, which was at 6.6 percent before the attacks, rose sharply to 7.3 percent by year's end, and became as high as 8 percent over the summer.

There were cutbacks in businesses that had been holding up well, like stores, restaurants, hotels, air transportation and real estate. Even after accounting for brokerage firms displaced by the attack, declines accelerated in the financial sector, printing and business services. Many blue-collar and service workers were suddenly laid off.

James Parrott, an economist for the Fiscal Policy Institute, a labor-backed research group, estimates that the attack itself led to the loss of 79,300 jobs, or roughly half of the jobs the city has lost since the end of 2000. The sudden surge in job losses ''increased the likelihood that some families got hit not once but twice,'' he said.

''Any way you honestly look at the numbers,'' he added, ''you still come away thinking there's a pretty substantial impact.''

More than 110,000 people filed claims for unemployment insurance in the two months after the attack, and only slightly fewer filed for unemployment over the next two months. So there was a sudden influx of newly unemployed people, at a time when more than 230,000 New Yorkers were already looking for work, according to estimates from the New York State Department of Labor.

Meanwhile, employers were shell-shocked, reluctant to add any workers at a time when another attack seemed likely at any moment. A monthly survey of business executives published by the New York branch of the National Association of Purchasing Management showed a steep drop in their confidence in the future, which by November had dropped to the lowest level in years.

Perhaps as a result, unemployed workers have been slow to find jobs. In the last few months, roughly 100,000 in New York State have used up nine months of unemployment benefits without finding work. Based on the patterns of unemployment claims, many of those workers were probably in New York City.

Of course, business was disrupted and confidence was shaken all over the country. Americans lost jobs in industries like air transportation no matter where they were working.

Comparing New York and other areas is tough because cities that were almost untouched by 9/11 have experienced extreme economic pain for other reasons.

Trouble in the textile industry has sent unemployment rates soaring in the Southeast. And at the moment, the economic epicenter of Silicon Valley -- San Jose, Calif. -- has the highest unemployment rate of any big city, according to the federal Bureau of Labor Statistics. The unemployment rate there is 7.6 percent, while in the New York City metropolitan area, the rate is only 7.3 percent. (It is 7.9 percent in the city proper.)

But some economists suggest that one can get at least an idea of the effects of Sept. 11 by comparing the city's economic performance to the conditions in other parts of the region. After all, in previous recessions, the region's economies tended to move as a block.

Not this time. Unemployment in Connecticut has scarcely budged in the past year, and it rose only 1 percentage point on Long Island, while the city's rate has jumped by 1.9 percentage points. And while New York City remains down almost 84,000 jobs, the job count has actually risen a tiny bit on Long Island, in Westchester County, in Rockland County and, of course, in Jersey City, where some displaced companies settled workers.

Jobs and unemployment are not the only measures of economic impact, of course. Another is incomes, which is harder to figure. In April, the Federal Reserve Bank of New York estimated that the trade center attack had caused about $4.5 billion in lost income in the city, based on jobs lost and average incomes.

But the income loss may well turn out to be higher. One reason is that workers at garment factories, hotels and restaurants, as well as car service drivers, have all reported working fewer hours a week. So while they are not technically unemployed, their incomes fell.

And lower incomes translate into lower income tax revenues for the city. According to the city comptroller's office, tax collections dropped by about $2.5 billion in the last fiscal year, which included Sept. 11.

More than $2 billion of that was from the attack, according to Mr. Thompson's analysis, including a drop of slightly more than $1 billion in the personal income tax, a $300 million drop in sales tax collections, and a decrease of more than $500 million in business taxes. Indeed, he reckons that about half of the city's current $6 billion budget gap can be attributed to 9/11.

The situation on Wall Street has been and remains the big cloud on New York City's horizon. But industry experts find it hard to distinguish the effects of Sept. 11 from those of a stock market sell-off that began two years ago and continues to this day; the recession; corporate scandals; and well-publicized government investigations into the ethics of analysts and their employers.

Whatever the cause, the number of jobs in the securities business has fallen by close to 17,000 in the last year alone, and Lehman Brothers recently confirmed that it was going to embark on more layoffs.

Meanwhile, the Securities Industry Association says that its members are not likely to see their business rebound until next year at the earliest, which has bad implications for bonuses as well as for jobs. And firms like Goldman Sachs have publicly turned against the idea of clustering all their employees in one area.

Some of the economic fallout that people expected shortly after Sept. 11 has not proved to be as bad as predicted. For example, tourism has rebounded, at least among American visitors, though the city's tourism board estimated last week that tourist spending fell by about $1 billion in 2001.

Hotels and restaurants began rehiring before Christmas, said Barbara Byrne Denham, chief economist for The New York Stat, a newsletter on the local economy. While the number of jobs in those areas has not returned to last year's levels, she said, it has been increasing.

And the spiraling job losses that some people feared would continue into 2002 did not. ''The economic job loss from Sept. 11 was severe but immediate,'' Ms. Denham said. ''It has dissipated now.'' While the city economy is by no means strong, she added, its current difficulties are related to the national recession.

But other factors that people expected to help the economy rebound have not had an effect, or at least not as quickly as expected. Chief among them is the infusion of cash from the government and insurance, which was widely expected to have jump-started a recovery.

Federal assistance is flowing, but slowly; for example, the comptroller's office reports that of the $9.1 billion in aid pledged by the Federal Emergency Management Agency, only $2.3 billion has been released so far.

Meanwhile, the New York City Partnership is warning that the prospects for rapid insurance settlements, which could total more than $50 billion, have dimmed.

After disasters, ''the conventional wisdom is that communities always came out better than they went in,'' Ms. Wylde said. ''It's a fine theory, but guess what? It didn't happen here.''

A version of this article appears in print on  , Section 1, Page 35 of the National edition with the headline: Attack Gave a Devastating Shove To the City's Teetering Economy. Order Reprints | Today’s Paper | Subscribe

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