The fact that millions of Americans watched major portions of the war in Iraq on television in real time will undoubtedly impact our economy. To gauge the extent of the impact, we should take some lessons from consumer response to the terrorist attacks of Sept. 11.
That was the first time consumers had witnessed national security events unfold as they were happening. And it resulted in a new pattern of consumer behavior — behavior that led to a significant crunch on several key industries. These are the very industries that are likely to be hurt again.
The travel industry is one that will certainly be severely affected. While airlines grab the headlines about all the money they're losing, thousands of travel-related firms — hotels, restaurants, theme parks and car rental agencies, for example — are also hurting.
And it doesn't stop there. In the regions most affected by travel declines, such as the Mountain states, there are secondary support-service industries that are also affected. Businesses that rely on the well-being of the geographic area in general face a decrease in demand for their products as people put deferrable purchases on hold. Gasoline stations, for example, will lose business as travel is curtailed to save money, or becomes unnecessary because people have been laid off and no longer drive to and from work.
Oddly enough, this “ripple effect” can be more damaging to the economy in general than to a specific industry. For example, when an area depends heavily on tourism for revenue, it will see a sharp decline in tax revenue when tourism falls off. Measures as severe as placing government employees on a four-day workweek are not uncommon.
How the markets respond to events like the Sept. 11 terrorist attacks and the war in Iraq can provide insights into consumer behavior in times of national crisis. But what I find particularly fascinating is the rate at which forecasters will adjust their predictions based on what the “talking heads” have to say. Recently, we've heard everything from “major collapse” to “strong stimulus” in gauging the effect of the war on our economy.
Getting a little closer to home, how will this affect freight patterns in trucking? I think it's likely that for non-durable consumer goods, such as food and clothing, we'll see only minor variations from typical seasonal patterns, with the exception of those parts of the country dependent on tourism. But even in those areas, current levels of consumer spending suggest that the falloff may not be as steep as we thought.
Spending on durable goods — products that typically last more than three years — is a different story. In response to uncertain times, people often postpone buying these items even if they can afford them. And people who have lost their jobs won't have the money to purchase these big-ticket items.
I think that this time around, however, we'll see the production-to-consumer pipeline adjust very rapidly to changes in demand. Three factors make this possible: the transfer of information has improved; inventories are lower; and production schedules are more flexible. Consequently, overall declines and recoveries are likely to be smaller than in the past.
Recently, we've seen forecasters reduce both the degree of decline and the degree of recovery they originally predicted. This doesn't mean that the economic situation improved; it simply means forecasters reconsidered their models.
For trucking, the bottom line is that traffic will improve steadily through the rest of the year, although not at the rates we saw in '97.