History - and Greenspan - Point to Economic Revival ; Federal Reserve Chief Sees Resiliency in Economy, but Also Uncertainty, after Last Week's Terrorist Attacks

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Last week's disaster probably pushed the United States economy into recession. But judging by history, a recovery could come faster than many Americans may now expect.

The vast economy has sturdiness - and a responsiveness to the fuel of low interest rates, tax cuts, and new spending - that bode well for the future. One new study of disasters, from the Kennedy assassination to Hurricane Andrew, found a short-lived impact on the broad economy - often just a few months.

The great uncertainty is that last week's attacks represent a different type of disaster from other recent events. The effect, psychologically at least, is not isolated to a single city or region. From travel agencies to auto showrooms, sellers of big- ticket items worry that consumer confidence has been shaken - and could be further rattled if a crackdown on terrorists prompts reprisals.

Federal Reserve Chairman Alan Greenspan highlighted these divergent economic forces in Washington yesterday.

"The American economy has become increasingly resilient to shocks," he told the Senate Banking Committee. He said the economy's long-run prospects "have not been significantly diminished by these terrible events."

But he added sobering notes. "In contrast to natural disasters, last week's events are of far greater concern because they strike at the roots of our free society, one aspect of which is our market- driven economy."

At the moment, while stock prices have plunged and air traffic has been curtailed, experts see signs that shoppers are returning to at least their basic spending routines after a week of near- standstill.

Over the longer run, devastating events can change the pattern of economic activity in important ways. The 1973-74 hike in oil prices altered business and consumer practices. Today, extra security measures in the nation could hurt corporate profits and boost federal spending.

Already, alternative means of transportation - railways and buses, for instance - have been booming. Teleconferencing has become more popular.

In his testimony, Greenspan speculated there could be an upwelling of support for expanded free trade - a side-effect of newfound global unity against terrorists.

While there is no easy comparison to the tragedy at the World Trade Center and the Pentagon, a new business-backed study offers some useful insights.

Looking at 14 serious events, ranging from the assassinations of President Kennedy and Martin Luther King to the previous bombing of the World Trade Center, it found that the economic effects often lasted just two or three months.

"Then there is a rebound," says business-cycle expert Victor Zarnowitz , the economist who did the study for the New York-based Conference Board.

Measuring past disasters

Major natural disasters - such as Hurricane Andrew in 1992 or the Northridge, Calif. earthquake of 1994 - barely show up in the national statistics on output or unemployment for the year.

The current scenario is more severe, in both loss of life and economic impacts such as the temporary airport shutdown.

While this may deepen a recession, government stimulus is paving the way for a rebound.

"Recovery will be a bit stronger than it was going to be," says Paul Kasriel of the Northern Trust Co. in Chicago. "But it will start from a lower base."

He and some other economists now expect a snapback to to begin early in 2002 - rather than later this year. …


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