Analysts debate effects of attacks on economy

Even after the shocking terror last week, economists' general concern was the consumer spending level. According to CNNfn.com, consumer spending fuels around two thirds of the economy.\nThe "psychological impact is what makes (this situation) highly unpredictable," Bill Witte, a professor of economics said. Any tragedy on the national level might influence consumer psychology and change the behavior of spending in the immediate future. But it is very difficult to measure how much correlation will exist between the tragedy and consumer psychology. In general, it is perceived reactions from the terrorist attacks will not have long-term effects for the U.S. economy.\nAccording to Harris Interactive's online poll of 4,610 U.S. adults conducted on the night of the attacks, about 51 percent of adults answered that stocks would not be a good investment for the next weeks and months because of Tuesday's events. Only 7 percent answered that it would be a good investment. \nWhen respondents were asked if they were planning to sell stocks because of the terrorist attacks, 99 percent answered "No." This could be understood to mean people generally don't think the attacks will have a long-term effect to the U.S. economy. \n"There may be the possibility of a stock market drop for the very short period as an effect of this tragic event," Witte said. "I would guess if this happens, the stock market may decline 7 to 8 percent early this week, but it should recover very soon. Maybe within a week or so." \nEconomists believe that if Tuesday's tragedy has any effect, it will be a negative one, especially since before the attack the U.S. economy had been weakened for several months. The U.S. economy was expected to slow down since Aug. 29, when U.S. Department of Commerce officials estimated a 0.7 percent increase for the second quarter. According to a recent USDC analysis, the real gross domestic product has declined from a 1.3 percent increase to a 0.2 percent increase for the first and second quarters of 2001, respectively.\n"The attack may cause a snowball effect," Witte said. Before the attacks, Witte thought the chances of the U.S. economy slipping into a recession by next year were around 25 percent. Now he estimates it is closer to 35 percent.\nOn Aug. 21, the Federal Reserve cut rates for the seventh time this year in order to encourage investment and boost consumer spending. The slow down in consumer and business spending and recent sluggish stock market news has been somewhat consistent. \nGenerally, experts agree with the idea that the Fed's seven consecutive interest rate cuts reduced the possibility of an economic recession.\n"People anticipate interest rates to be cut in such economic situations, which we call a reactive economic policy, sometimes (the Feds) have to follow the expectation the markets demand," said business professor Heejoon Kang. "The economic conditions could have been worse (were it not for the Fed's actions)."\nBut experts also show some concern over the Fed's aggressive interest cut. Business professor Craig W. Holden points out that "too much manipulation" may cause "people to make bad decisions. People can take out too many loans when they shouldn't because of the lowered interest rate."\nHe also said that many retired people who depend on interest returns may decrease their spending, which can have a negative effect on consumer spending.