Analysts believe the initial reactions within the US economy to the recent terrorist attacks have st...
Analysts believe the initial reactions within the US economy to the recent terrorist attacks have started to give way to clearer underlying trends.
Although business trends were weak before 11 September, and in some cases deteriorating, the immediate negative effects on industries such as airlines and hotels soon became obvious.
However, areas such as high-end retail activity, which saw demand drop 20% in the days following the attacks, have since come back a little from their lows, says Ed McKelvey, senior US economist at Goldman Sachs.
One of the most noticeable casualties of the attacks, he says, has been the building and construction industry, which saw a 15%-20% drop in orders for new homes in September. These figures compare to a 5%-12% increase in August. Cancellations were also up 5%-10% on the previous month.
Technology, a sector for which analysts had high third-quarter hopes, has also taken a pounding, with many companies reporting difficulties in closing deals. Software companies in particular have suffered significant declines in revenues and earnings, while demand for semiconductors has completely shut down since the attacks, according to McKelvey.
'The areas less heavily affected appear to be communications software, where the impact was confined to postponements and difficulties in closing new deals, and healthcare IT services,' he says.
Aberdeen's North American equities fund manager Rupert Howard agrees with McKelvey that technology has suffered from the fallout of 11 September.
'Recent events have cast a serious question mark over when we can expect a recovery in technology,' he says. 'Analysts had been expecting a surge in demand prompted by students going back to school and the launch of the new Windows XB platform but this has failed to materialise.'
In the main, consumers and the corporate markets have not felt the need to upgrade their PCs and sales have been disappointing as a result. This has sent a message to the market that the improvement in the sector that had been anticipated for the start of next year will now happen much later, perhaps as late as 2003.
Another reason for this, says Howard, is that technology sells to the rest of the economy. As a result, recovery in technology will almost certainly lag behind recovery in the rest of the economy.
As well as construction, Howard identifies banks as another area that continues to be sold off. Companies such as US Bankcorp and SunTrust have announced a deterioration in their loan portfolios and a sharp increase in bad loans, making investors nervous about the sector.
This is probably due, at least in part, to the rise in unemployment from 5% to 6%, he says.
'However, the real danger for retail sectors is if US consumers stop spending,' he says. 'Over the past few months, consumer demand, which accounts for about 60% of the economy, has been propping up the economy. If people stop spending then the recession will become noticeably sharper. There was a 2.4% month on month drop in consumer spending in September and there is a possibility that October's figures could be even worse,' he says.
Slight bounce back for high-end retail activity.
Clearer economic trends emerging.
Communications less badly hit.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress