The US economic recovery will be delayed by the terrorist attacks of 11 September and anthrax scares. But in the wake of the US administration's massive monetary and fiscal policy boost since that tragic day, a V-shaped recovery in 2002 is now likely.
Before September, the US economic slowdown was, to a large degree, simply an inventory liquidation exercise, as corporate America responded to more normal post-bubble demand conditions. That adjustment was close to completion before the terrorists struck. Manufacturing was starting to turn around. Leading indicators had been improving for several months in a row. And consumer spending was being sustained.
But now the consumer will be less confident and thus less willing to spend, and unemployment has started to rise much more quickly as several sectors (airlines, leisure and insurance) accelerate lay-offs. This could undermine aggregate incomes.
