Monday September 17, 2001

NEW YORK - Much more than the skyline of New York changed when extremists crashed passenger jets into the twin towers of the World Trade Center. Businesses across the nation face a new reality, at least in the short-run, of reluctant consumers and hesitant travelers as well as heightened security and greater demand for high-tech communications gear.

One of the first things American businesses will have to deal with is consumers who have gone into hiding.

"I feel bad, you feel bad, everybody feels bad about what happened," said Sun Won Sohn, chief economist at Wells Fargo & Co. "We're not going to feel like going shopping or going to a movie or going on vacation."

That falloff in already-weak consumer spending, which makes up about two-thirds of the economy, is likely to translate into a recession that lasts at least through the end of the year, Sohn said.

The losers will be retailers, airlines, hotels and restaurants, not only in New York but perhaps globally.

"I think a critical element for rebuilding consumer confidence will be how rapidly the Bush administration can put this issue behind us - identify the criminals, punish them and do it decisively without repercussions in the oil market," Sohn said.

Businesses hit in the attacks must overcome billions of dollars in losses. Although the government already has approved $40 billion in aid and the Federal Reserve has provided lots of cash to the banking system for loans, it will take months for most of them to recover - if they ever do.

John Majors, a partner at Ernst & Young who specializes in insurance, said many companies already are calling to seek help with insurance claims, from property damage to workers' compensation and business interruption coverage.

He's also seeing changes in operations.

Many companies have sealed all but one entrance to their buildings, hired more security guards and require more-rigorous ID checks, Majors noted. It's happening at corporate headquarters buildings, bank branches, even shopping malls.

"Clearly, security is heightened, and that's important for calming people down," Majors said. "My guess is that we're being overcautious right now, but I believe there will be heightened security that will be permanent."

Majors said Ernst & Young employees are doing considerably more video and telephone conferences with clients in other cities.

"It's a reaction to the unpredictability and uncertainty over when flights are going," Majors said. "Once the airlines get up and running and the business world and life in general becomes more predictable, this will probably lessen some." Kathryn Harrigan, a professor of business leadership at Columbia University, said the trade center attacks taught major lessons about logistics.

"Some companies had almost everything they owned inside the World Trade Center, and lost it all," she noted. "We don't live in a world anymore where you can put all your eggs in one basket."

Even companies that had good external computer data storage may not have given much thought to alternative physical spaces if they were forced to evacuate, whether for a terrorist attack or a hurricane, she added.

"It's an excellent time to do some organizational redesign," Harrigan said.

Technology, too, proved its worth, she said.

"I think a lot of people will be getting cell phones and pagers," Harrigan said.

Richard Sylla, a professor of business history at New York University, notes that while the trade center and nearby buildings were devastated, "99.9 percent of the country was not damaged."

In addition, he said, the government moved quickly to make sure there was liquidity in the banking system - a move that may lead to a calmer opening for the stock markets today.

"If the system had broken down and people couldn't get money out, they'd be worried," he said. "They'd be thinking, let's sell stocks and get cash, let's get safer. ... All signs are that Monday could be ho-hum."

But some damage can never be undone.

"The real tragedy is not the rubble on the ground but the people that were lost," Sylla said. "Several thousand people died and with them went lots of education, lots of training, lots of expertise. That human capital damage will take a long time to repair."