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Amid economic turmoil, inklings of optimism

From Brooks Jackson
CNN Washington Bureau

WASHINGTON (CNN) -- Hundreds of thousands have lost work in recent months, many since the September 11 terror attacks. But while the economy now looks bleak, there are signs already that suggest it will come roaring back, according to economists.

Boeing, the airplane manufacturing giant, expects to cut as many as 30,000 employees. But the layoffs extend far beyond airlines. Hotels and restaurants, for example, have been hard hit. And the economic shock has affected many other industries as well.

"I don't know what the unemployment office looked like a month ago or two months ago, but I'm sure it wasn't quite this crowded," said Bob Bannon, a laid-off telecom worker.

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Wall Street is laying off investment bankers. Oil and gas drillers are cutting back. Drilling is down 12 percent since July. Even Toys "R" Us is delaying opening one of the biggest toy stores in the world on Times Square in New York.

The economy, most now agree, is in full recession.

"We think total job losses upcoming, roughly a million," said Doug Duncan, chief economist of the Mortgage Bankers Association.

But there are bright spots. Las Vegas, Nevada, was devastated the first week after the attacks. But the city has bounced back to normal. Hotels were 97 percent full last weekend.

And auto sales, fueled by zero-percent financing offered by manufacturers, are surging and could even hit a record this month.

"Sales on the first 10 days of October were just absolutely stunning, phenomenal," said Diane Swonk, chief economist at Bank One.

Unlike the last recession, energy prices are not rising but dropping. Crude oil is down roughly 25 percent since September 11. Gasoline is down 17.5 cents. Diesel fuel is down 12 cents. Home heating costs should be much lower this winter, too.

Mortgage rates are dropping. Nearly twice as many homeowners are lining up to refinance mortgages, many of them pulling out extra cash, billions of it.

"We'll see about $40 billion to $50 billion of additional consumer spending in the economy as a result of the ability of consumers to take out cash from their mortgage," Duncan said.

Economists also expect the Federal Reserve to cut even further the short-term interest rate, now its lowest in decades. And Congress is considering billions more in additional tax cuts and extra spending to jolt the economy.

Many private economists are saying the economy eventually will come back even stronger than they had predicted before.

"The light at the end of the tunnel that all of us have been waiting for is much brighter than it was in the weeks before September 11," Swonk said.

Much depends on how consumers react -- confidently, or fearfully. It's too soon to measure that reaction precisely, but many retailers said customers already are coming back.


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