Economic Aftershocks

Ninth District businesses report on the impact of Sept. 11, 2001

Published November 1, 2001  | November 2001 issue

Editor's note: In an attempt to gauge the impact of the Sept. 11 events on the Ninth District economy, the fedgazette conducted a special, post-tragedy poll of business conditions. However, the survey was conducted before U.S. military efforts in Afghanistan began on Sunday, Oct. 7.

The majority of respondents to a special Ninth District business poll said the terrorist attacks of Sept. 11 have had little or no effect on their companies' prospects, which were already dimming due to the general economic slowdown. Business liaisons to the Federal Reserve Bank of Minneapolis told the fedgazette in a survey conducted in early October that employment, business investment and expenses, and production and deliveries were largely unchanged.

"[The] last three weeks were down, but this week is back up to planned sales and we expect it to remain so," reported one Twin Cities retailer. "In another month consumer spending should return to a more-normal level."

Results of October 2001 fedgazette Informal Business Survey of
Former Bank Directors and Advisory Council Members

  Up No Change Down
26 %
58 %
16 %
 6 %
42 %
52 %
 2 %
73 %
25 %
  0 %
82 %
18 %
Business investment plans
  8 %
60 %
32 %
Forecast for production/sales
14 %
48 %
38 %
Surveys Sent
Surveys Received
Response Rate
41 %

However, for many of the respondents, those "normal levels" were already slumping prior to Sept. 11, and some further signs of weakness emerged. The survey asked 122 former Minneapolis Fed directors and members of the bank's Advisory Council on Small Business, Agriculture and Labor about the tragedy's impact on their company. The Minneapolis Fed received 50 faxed responses, with more than half (52 percent) of respondents expecting decreased revenues following the tragedy and 38 percent predicting a decline in future production or sales.

Almost one in five expect employment to decline, while no respondent expects employment to increase after the tragedy; about one-third expect business investment after the tragedy to decline. One respondent, for example, said that "due to uncertain tourism conditions, two hotel projects have been put on hold, as well as one major renovation."

But rather than having triggered such weakness, "the changes that we are experiencing in our community are related to an economic slowdown which was accelerated by the tragedy on Sept. 11," according to a North Dakota respondent.

Such a phenomenon was echoed by a number of other respondents. A Montana respondent said business activity was "stuttering ? with consumer and agricultural activity at levels [that are] little changed from pre-Sept. 11." The same appears true in Michigan's Upper Peninsula. A respondent from a lumber company said business has been "significantly affected by events other than Sept. 11. While the Sept. 11 event is adding to the decline in commodity businesses, they were already on the decline."

A banker in the U.P. said, "It appears that a soft economy will get softer here in Upper Peninsula. Everyone has had some margin problems already this year, but I believe the problem will get worse before it gets any better."

And from a Minneapolis construction executive: "Our industry is subject to very strong cyclical change; we have been preparing for a downturn since 1998. Due to the length of the up cycle I believe the down cycle will be longer and deeper than most predictions."

These anecdotal reports are consistent with a pre-tragedy survey of manufacturers in Minnesota, Montana and South Dakota. The survey found that the financial performance of district manufacturers slumped in the first half of the year, and respondents generally believed second-half profits would remain down or stay the same. See summary results below.

Respondents noted poor conditions across most ag sectors, but not a single respondent attributed any of the existing conditions to the tragedy; several said some sectors have even rebounded, if only slightly. This theme also mirrors results from the Minneapolis Fed's third quarter survey on agricultural credit conditions, which was conducted in August. This survey showed farmers in the district had poor net income and low capital spending and machinery loans.

Respondents in the tourism business relayed a mixed bag of impact. One Montana tourism business owner said, "We depend on airlines for 15 percent of our winter business so we are watching the airline sector very carefully for the next 30 to 60 days."

But given the district's relative isolation from the events in New York and Washington, D.C., several other tourism respondents said concerns over airline security could translate positively for their business. "Tourism in the Dakotas is most dependent on the 'rubber tire' market," said a South Dakota hotel executive. "How people relate to airlines, security checks, etc. over the next year is very important. Will they tend to take more regional driving vacations? [That] would help us. If airlines discount [air fares] again, our visitors will decline."

A tourism business operator in northern Minnesota said, "So far people are still coming here, perhaps [because of] a short [car] trip rather than one by plane. Immediately after Sept. 11, people were here but spent less money." Another contact in northern Minnesota said, "Tourism may benefit or hold steady because of relative safety and distance."

Although several people said lower interest rates were helping to boost refinancing and some business investment, a number of others noted general uneasiness among consumers. One banker said there was "some caution on new purchases ... [and] less optimism for the short-term future."

A Minnesota poultry producer said a local bank in town reported that "consumers are responding more conservatively, building checking balances and reducing debt."

An equipment dealer in North Dakota: "Everyone is in a much more cautious frame of mind when making larger purchases."

Respondent remarks showed that some living in more rural, isolated regions have not yet been affected much, if at all. "We have not seen layoffs, at least not many in this part of central Dakota. It seems to many that the event of Sept. 11 eventually will result in more, not less, activity," said a South Dakota respondent.

Others reported few immediate impacts, but were expecting some as difficulties worked their way through the economy. A respondent from northern Minnesota: "Our community has not seen the effects of Sept. 11 economically yet, but as there are more layoffs in Duluth and the Minneapolis-St. Paul metropolitan area we expect to see some ripple effect of people spending less money."

A few also mentioned certain community assets that might help stave off the negative effects of the tragedy or the larger economic downturn. A Grand Forks, N.D., contact said that in times of recession "more students stay in school. On balance, the situation should have less of an effect than some other cities without a university. Our military base will help the economy also."