America Attacked:
Local Economy
With Stephen S. Fuller, Ph.D.
School of Public Policy at George Mason University
Monday, Sept. 24, 2001; 3 p.m. EDT

Tuesday, Sept. 11, in a horrific series of events, hijacked planes hit and destroyed the twin towers of the World Trade Center and crashed into the Pentagon in what's being described as the single worst act of terrorism on U.S. soil. The Bush administration and law enforcement officials are actively seeking those responsible and have declared war on terrorism.

Stephen S. Fuller, Ph.D., professor of Public Policy and Regional Development Center at the School of Public Policy at George Mason University, will answer questions and comments from readers on Monday, Sept. 24 at 3 p.m. EDT, to discuss how the terrorist attacks affect the local economy in Washington and what we can expect in the short term economy.

Professor Fuller joined the faculty at George Mason University in 1994 as Professor of Public Policy and served as Director of the Ph.D. in Public Policy from July 1998 to July 2000 and currently is Director of the Center for Regional Analysis. Prior to joining the George Mason University faculty, he served on the faculty at George Washington University for twenty-five years, including nine as Chairman of the Department of Urban Planning and Real Estate Development and one as Director of Doctoral Programs for the School of Business and Public Management.

Below is the transcript.

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Stephen S. Fuller, Ph.D.: There will be winners and losers as a result of the terrorist attack September 11th. In the short term, the hospitality industry is taking the biggest hit and the District of Columbia will feel this impact the most. On the positive side, over time pay will contribute to higher retail sales next month and reconstruction of the Pentagon will generate substantial new work in the building industry just as it was showing signs of cooling off. The federal contractors in the area will also benefit from increased federal spending. In the short term the economy will feel the slowdown but next year it could actualy benefit from this terrible event.

Clifton, Va.: My girlfriend and I went to dinner in Georgetown on Saturday night. Got an outside table at Tony and Joe's overlooking the river at 7 p.m. without a wait On Sunday night the Olive Garden had 30-minute wait at the one in Falls Church. Even before Sept. 11, noticed more closed stores at Tysons and Fair Oaks then I have seen since 1981-'82 recession. My girlfriend's daughter and her teenage friends (17-18 year olds) are avoiding the malls. Another cost most of us will face in a dramatic increase in our homeowners and auto insurance as a result of the Sept. 11 incidents.

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Stephen S. Fuller, Ph.D.: Dc is feeling the loss of tourists much more than the suburbs and its much more dependent on. The slowdown in retail sales that you observed is not universal. overall so far this year, retail spending in the suburbs is running 3.5% ahead of last year which was the best year ever.

Cleveland Park, D.C.: It's depressing to see the local economy take such a large, indirect hit from the terrorists. In part, I blame the Secret Service. Over the past few years they've become increasingly powerful and arbitrary in their decisions to close streets, erect tourist-frightening barriers everywhere, and now closing Reagan National Airport (hopefully temporarily). They've become like a modern-day Praetorian Guard. Will anyone take steps to rein them in? We need to reopen National Airport now!

Stephen S. Fuller, Ph.D.: I can not comment on the sercet service but can tell you that reopenning National Airport will be critical to the District's regaining its tourist industry. the message that the closed airport sends to the rest of the country is thatg Washington is not a safe place to visit. The loss of tourist dollars could cost the city 22,000 jobs this month and next, months that are usually the bes. Unemployment will double if the airport is not openned soon.

Richmond, Va.: Dr. Fuller:

In a 9/19/01 Washington Post article you are cited as saying that the tourism/hospitality industry in metro Washington could lose $1 billion in business in September and October. What portion of that would you estimate to be within Virginia? Do you have a rough estimate of the cost to Virginia in dollars of the Pentagon tragedy and Reagan national closing outside of tourism/hospitality? Thank you.

Stephen S. Fuller, Ph.D.: The $1 billion lost from the hospitality industry over this and next month is regionwide; approximately 55% would be from the District economy and the rest from the suburbs. Northern Virginia's share would be about two-third of the suburban portion. This loss included hotels, restaurants, retail, transportation and personal spending associated with the hospitality industry. The losses associated with the Pentagon may actually show up as economic gains with over time pay, increased leasing of office space, reconstruction and new contracts of professional, security and intelligence services. These will benefit the economy next year.

Vienna, Va.: Have there been a sign of difference in consumer spending from last week's attacks? Weren't we going into recession anyway?

Stephen S. Fuller, Ph.D.: The Washington area economy was no where near recession before September 11th. For the 12 months ending in July, the Washington area had generated 80,500 net new jobs for a 2.9 percent growth rate. This growth rate ranked us number 1 among the nation's 10 largest metropolitan areas and we also had the lowest unemployment rate at 2.7%. The Washington area accounted for 15% of all the new jobs nationwide over the 12-month period. So, going into September the ec but not as good as 19990 or 2000 which were the best years since 1988.

Consumer spending has declined significantly over the past 10 days and it is still not clear when consumers will get back to normal patterns. Much of this spending will be differed to a later time and show up as a stronger than normmal October. So far, housing and auto sales are also lagging from their strong performance so for this year but I also believe that by October these will both be back close to normal.

Reston, Va.: Stephen,

How do you see the real estate market reacting over the next twelve months? Thanks.

Stephen S. Fuller, Ph.D.: The housing market has been good this year and I believe it will recover its temporary slowdown by next month and end the year as one of the best. Job growth remains strong generating increased demand well ahead of supply so the prices should stay fir rate reduction coming next week when the Fed meets again), the market should weather this storm better than other parts of track after the initial impact of the terrorist attack fades.

Virginia: How have the cut in the Fed. interest rate helped at all?

Stephen S. Fuller, Ph.D.: The reduction in interest rates over the year and with more to come has reduced the cost of consumers' and business debt load. With refinancing of home mortgages, additional spending power has been created. Firms in financial trouble have had reduced their costs of short term borrowing and firms with heavy debt loads have been encouraged to refinance their debt. Credit card interest rates and home equity loans are cheaper. All of this has helped put money back into consumers' pockets and encouraged their spending at levels that has kept the economy growing, at least until September 11th.

wiredog: All I can say is, thank God I work for a Defense contractor. I have a friend who's an airline pilot and he says people (not him yet) with $200,000/year salaries and mortgages on $700,000 houses are being laid off. That's gonna hurt the housing market.

Stephen S. Fuller, Ph.D.: During the Gulf War, the Washington area benefited from a substantial increase in federal contracting, about $2 billion extra. Federal contractor totaled $28.6 billion in 2000 with $12.2 billion from DOD alone. Increased DOD contracting has already started; also GSA, Treasury, State, Transportation, and FEMA. Federal spending in total added up to $74.1 billion last year and accounted for 31.8% of the area's total economy. It is nice to have a rich uncle in times like these.

Philadelphia, Pa.: Will today's stock market rally sustain?

Stephen S. Fuller, Ph.D.: Before September 11th, the national economy was showing signs of re-acceleration. Its fundamentals are strong and once it gets by the shock of this disaster, many corporations will begin to growth and be profitable. The stock market adjustments that had occurred over the summer had taken it down to where its rise was perdicted by most investors. Again, as soon as confidence returns, the bargains are earily apparent and so are some veryh good PE ratios. The market will recover and quickly once it gets going although this may not be sustained on the first or second tries. Watch trend and select your stocks carefully using accepted measures of future performance as your guide.

Arlington, Va.: Are there any local industries likely to see an upswing after the recent events?

Stephen S. Fuller, Ph.D.: There are some big winners in this although the increased spending will not be appartent for some until next year. clearly, the security firms and construction industry will see some immediate increases in outlays.the biggest winners will be federal contractors who provide techical services to DOD and other federal agencies involved in this new "war".

Washington, D.C.: Yes, Reagan National would have to re-open for the tourism industry to reach its former levels -- but what's more important? Making money or keeping Washington, D.C. area residents (and visitors) safe?

Stephen S. Fuller, Ph.D.: If planes flying in and out of reagan National can not be made safe, then these same planes flying in and out of BWI and Dulles and any number of other airports are cose enough to the white House or Capitol to attack them before; its not the airport that is at fault!

Germantown, Md.: What is taking so long to open Reagan National airport?

Stephen S. Fuller, Ph.D.: That's a good question. Several security studied are reportedly underway to be ready on October 1. These may help resolve the situation.

Richmond, Va.: Dr. Fuller:

Thank you for answering my question concerning the portion of the $1 billion hospitality loss that is in Virginia. Do you have a rough estimate of the dollar loss for Virginia's economy excluding the hospitality industry? Thanks again.

Stephen S. Fuller, Ph.D.: For the Virginia economy, there will be a small loss at the end of the year compared to what the economy would have produced had the attacks not occurred. I do not think this loss will be sufficienBeyond the hospitality industry these losses will be in deferred retail sales but overall there will be some increase when the year's losses and gains are is totaled up.

Rockville, Md.: Would our local economy be really that affected seeing that in D.C. the attack was more on military than any other district here whereas in New York it was the financial. I know we are all affected but when do you think we will see the effects from NY? Are we seeing them now?

Stephen S. Fuller, Ph.D.: Your question recognizes the importannt difference between the Washington area economy and any othe. government is still our main business here. Still, the economy last year totaled $233.2 billion and $74.1 involved direct federal outlays. So we do have some vulnnerabili. Take $1 billion or even $2 out of the economy in lost tourist spending and foregone retail sales, and that would lower our expected growth rate from about 3% to 2.6% this year. So, it is not at all as bad a situation as in NYC.

Washington, D.C.: What do you see in terms of the short or long run? We saw the stock market go down. Are there any support for investors, did the patriotic investing (to show the terrorists that they will not win) help, and also, are financial investors back at work?

Stephen S. Fuller, Ph.D.: The short run will be alittle rocky for a while; the long run should be good. Our economy is very resilient and essentially in good shape as long as investors and consumers think logically annd do not let their emotions control their actions. Sit back a watch a while and soon you will see the wise investors back in the market and making money.

Brattleboro, Vt.: Hi Stephen,

What about the Internet, web design, and online ventures?

Thanks!

Stephen S. Fuller, Ph.D.: What about thhe internet? It has helped to keep us in business these last two weeks as it was the least disrupted by the terrorist attacks. It is a new form of trannsportation and will increasinly influence our lifes. What roll it will play in the economy in its recovery over the coming year is unclear accept to say that it will be important beyond our recognition.

Alexandria, Va.: In the Post article Wall Street Stages a Comeback, investors says that there is a comeback and stocks are rising. Is that a good sign? Should you buy now? Historically, we go into depression when we are at war. What will the attack on the financial sector mean when we go to war?

Stephen S. Fuller, Ph.D.: Your facts are confused. The depression preceded WW II and thhe war helped the economy recoover. That was the only depression over the past century. In our other wars since 1945, the economy has become strong with each one as they have force us to develop and adopt new technologies and to become more efficient. This "war" will have the same impact on the economy and for that reason it is a good time to invest in our future. The prices are certainly attractive.

Somewhere, USA: Have we benefitted at all during our nation's recovery? What should the general consumer look for: lower gas prices, lower retail, should you invest? should you buy a house now? More and more people seemed to be getting laid off.

Stephen S. Fuller, Ph.D.: There are winners and losers so one answer to your question is not right for every one. It looks like gas prices will fall alit. Prices should stabilize except for housing, I think housing prices will continue to move higher as interest rates move down so go ahead a buy if you had already planned to.

Stephen S. Fuller, Ph.D.: I write a monthly report on the Washington area economy and it is available on the internet at mwcog.org and then click on Washington Economic Index. The September repor should be ready this week. Also, I will present a program on the economic impacts of the terrorist attack on the Washington economy. Check the GMU website for further information.

Watch consumer confidence and job growth. these will be the primary indicators in the short term of how well the area economy is getting through this tragic situation. Thanks.

washingtonpost.com:

That wraps up today's show. Thanks to everyone who joined the discussion.

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