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U.S. Economy Lesson Plan

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Life after 9.11

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The Response

Economic Downturn
November 14, 2001

If you stroll through your shopping mall, you're likely to find more "50% off" signs than "help wanted" signs. Worried retailers are cutting back holiday staff.

Outside the malls, many hotel rooms are empty and restaurants are half filled. Planes fly with mostly empty seats. All of this is because the U.S. economy is slowing and possibly headed down a scary path toward recession.

All things for sale…

Everybody likes to save money; however, the big price slashes at the Body Shop and Abercrombie & Fitch aren't designed to fatten your wallet. Most retail shops have slashed prices for their survival.

The Gap reports their net income is down 42 percent from the same time last year. Other retail stores are also reporting less sales compared to last year.

Soundscan, a company that tracks music sales, reports the industry has sold 11 million less albums this year compared to last. Not even releases by the Backstreet Boys and DMX could lift sales. Record stores hope Brittany Spears' new album will get people back in stores.

Movie executives hope "Harry Potter" and other holidays releases will fill theaters. Immediately after the September 11 attacks, most people simply stayed home, leaving multiplexes with lots of extra soda and popcorn to sell.

A quick look at how it works

The majority of the U.S. economy is made up of your spending - which is measured in a number called the Gross Domestic Product (GDP). Spend more, the GDP economy grows. Spend less, the GDP economy shrinks.

Spend less for two straight months, the GDP economy falls into what economists call a recession-- although a committee of economists officially decides when the U.S. is in a recession.

The U.S. has the largest economy on earth, and when it goes south, the world feels the pinch.

Trying to prevent a recession, the president passed a tax cut which sent taxpayers $300 over the summer. The Bush administration wanted people to spend that money to get the economy restarted.

Nonetheless, economists still believe by the end of the year the U.S. economy will officially be in recession. Holding out hope, business' are doing what they can to get you to spend.

So if prices are down, why aren't we buying? There are several reasons, but one of the biggest is unemployment.

Unemployment and falling stock prices

More than 200,000 people have lost their jobs since the terrorist hijackings. In New York, more than 10,000 people lined the streets in search for jobs. Some worked on Wall Street, some worked in stores near the World Trade Center, some worked for the airlines, which have been hit hard by the events of Sept. 11.

Unemployment was at a record low, 4 percent, two years ago. Today it is at 5.4 percent and economists predict the unemployment rate will climb to over 6 percent in the first months of next year.

With more people out of work, there will be fewer families spending money, making an economic recovery harder. More on unemployment numbers....

The stock market has also been in a decline. More than half of all Americans now own stock, which means falling stock prices don't just affect Wall Street traders.

People all over the country are invested in companies struggling with lower stock prices. Investors will make less of a profit and probably spend less from their paychecks. When the market slumps, it also makes layoffs more likely. More on the stock market....

The government tries to help

The government is using policy to add money to the economy and help struggling businesses.

Alan Greenspan, the chairman of the Federal Reserve, recently cut interest rates on the money banks lend to others banks. This Prime Rate is now down to two percent, the lowest in 40 years.

Greenspan hopes lowering the interest rate will help businesses spend money and grow. If banks can get money cheaply, they usually will pass on cheaper loans to business and consumers. More on government efforts to help the economy....

The Boom and Bust cycle

All economies go up and down. Over the past decade, the economy expanded more than any other time in history. However, all economies experience recessions.

The average length of the nine previous recessions since World War II was 11 months. The two longest recessions — in the mid- 1970's and early 1980's — each lasted 16 months.

Yet, economists say fears about terrorism and anthrax could push the United States into a deep recession.

Looking at several factors including the GDP numbers, the panel of economists who decide whether we are in a recession estimate that this current recession started in March. If it is an average one, we should come out of it in February '02. But no one knows for sure.

Right now we're experiencing a downturn, and the unprecedented acts of terrorism continue to leave everything, including the economy, in a wealth of uncertainty.