Headline: Aftershocks Rock Local Economy

Source: Washington Post, 19 September 2001; Page A01

URL: http://www.washingtonpost.com/wp-dyn/articles/A52773-2001Sep18.html

They started lining up before dawn Monday outside the unemployment office in Alexandria, and it hasn't let up. Most had worked at hotels, at companies that refuel or make meals for airplanes, or in restaurants at the shut-down Reagan National Airport.

The agency has had to borrow vacant office space to handle the crowds -- the biggest since the early 1990s, said Nancy Dean, who manages the city's branch of the Virginia Employment Commission. "We're just trying to keep them moving through here," she said.

Aftershocks of last week's terrorist attacks on the Pentagon and in New York are being felt in every part of the local economy. One expert said a third of the area's 150,000 hospitality jobs are at risk, as the closed airport and the security measures in downtown Washington keep tourists and business travelers away. US Airways' plan to lay off thousands of workers will contribute to what economists expect to be the first large jump in the region's unemployment rate in years.

Business leaders worry that there will be longer-term ramifications if Washington, once considered one of the dynamic markets in the country, is now seen as a viable target for terrorism.

But what makes the region a target could also help it withstand the economic blow of the attacks: the big, busy federal government. If President Bush puts the nation on a wartime footing and steps up spending on military and other government contracting, the Washington economy might not suffer in the long term. If he doesn't, it will.

For now, the restaurants and hotels that sprouted on the downtown streets of Washington and along the crowded Dulles corridor during boom times just pray they can make it through these first chaotic weeks of the disaster's aftermath. "The hospitality industry is feeling the brunt of the local economic impact. It's going to get slammed," said Stephen Fuller, an economist at George Mason University.

The tourism business pumps about $9 billion into Washington's economy each year. Fuller expects the industry could lose $1 billion in business in September and October -- ordinarily two of its strongest months. "It's an industry that's just evaporated because of this," Fuller said. About 50,000 hospitality jobs could vanish, he said, unless airline travel picks back up and tourists return in great numbers to hotels, restaurants and shops.

Washington Board of Trade President John R. Tydings said the economic ripples of last week's attacks go far beyond any single part of the economy. Regional leaders fear that the threat of terrorism could spark a wider loss of confidence in the business environment around the capital, he said.

Tydings said board members are worried about a downturn in the housing market, particularly at the high end. They also fear an impact on the region's universities as families decide where to send their children. But area financial institutions report that consumers are still comfortable -- "concerned, but comfortable," Tydings said -- and aren't pulling money out of banks.

The business community "will rebound -- we're still in the heavy, emotional period," Tydings said. "People are going to come back and recognize that because the federal presence is here, this market is going to be even more secure. Once that happens, all these other things will begin to sort themselves out."

Until now, employment has been strong in the Washington region. The July unemployment rate of 2.7 percent compared with 4.5 percent nationally. But the local figure was already rising, and experts said it is now all but certain to accelerate.

Arlington-based US Airways, for example, has said it will lay off 11,000 workers, and analysts say a significant number of those layoffs are likely to be local. Other airlines, including United, which has a hub at Dulles, are expected to plan similar cuts.

The situation is particularly dire because the region's biggest job engine of recent years -- high-tech -- was already stumbling. "The increased uncertainty of the security situation only compounds this tech sector's already troubled outlook," said Scott Cleland, an analyst with the Precursor Group, an independent research firm in Washington. In coming months, he said, many companies will pull back their information technology and communications spending, which represents almost half of all corporate spending nationwide.

Only one factor could reverse that trend locally, several experts said: a military buildup for a war against terrorism. "Sometimes the whole Washington area benefits a little bit from increased Defense Department expenditures. No one is saying that with a smiling face these days, but there's probably some truth to it," said Rich Doud, president of the Arlington Chamber of Commerce. Demand for better intelligence could mean more spy satellites, better surveillance systems, more secure e-mail networks and increased demand for wireless technology, said Susan Kalla, an analyst with Friedman, Billings, Ramsey Group Inc., an Arlington investment company.

One immediate effect: Several local companies have already received multimillion-dollar contracts to help rebuild the Pentagon. Several apartment managers, real estate agents and home builders said yesterday that they are counting on a military buildup and an increase in defense contracting to boost the local housing market.

But Julie Smith, president of Bozzuto Management, which manages 8,000 apartment units in the Washington-Baltimore-Philadelphia area, said any gains in military employment could be offset by losses in other areas. "We also have a lot of residents who work in the airline industry and hospitality and tourism industries, which will be negatively affected. It's too early to say what will happen," Smith said.

Experts who follow commercial real estate were similarly uncertain. Linda D. Rabbitt, president of Rand Construction Corp. of Arlington, said the construction sector will do as well as the rest of the economy. "We're a trailing indicator, not a leading one," she said. "We're so tied to the economy, and we're so dependent on job creation. It just depends on where the economy goes." Several businesses said they are particularly waiting to see what happens with local airports.

Charlie King, vice president of Arlington-based Red Top Cabs, said almost 20 percent of his drivers' business relies on trips to and from National Airport. "The drivers are working as many hours as they safely can, but the business just isn't out there," King said. "If the situation with National Airport doesn't resolve itself in the next several days, you'll start seeing a tremendous loss of jobs in this region."

At Mid-Atlantic Receptive Services in Arlington, which conducts tours of the D.C. area, owner Kate Scopetti said she is trying to retain her 14 employees even as business has disappeared in the wake of the attacks. "All of our student groups have canceled. All of our tours that were for this week and into October are moving to the spring," Scopetti said. "It's devastating for a small company like mine."

To deal with the slowdown in travel, most major hotel chains -- including Marriott International Inc. of Bethesda and Hilton Hotels Corp. -- are reducing employees' hours and rotating them among various properties to avoid layoffs. Marriott hotel managers said they are looking at closing off large sections of unused rooms and meeting spaces to cut down on electricity and housekeeping costs. Managers at the Ritz-Carlton in Georgetown said they were using front desk clerks and bellhops to help with security checks on each car that entered the garage.

At the Monarch Hotel on M Street yesterday afternoon, the sprawling lobby was oddly still and almost silent. Most of the people who did pass through were name-plated employees or locals making a quick trip to the downstairs gym. For more than an hour, not one chair or bar stool was used. Doorman Patrick Williams was particularly bothered by the slump in business. "I'm a tip employee, so it really hits us hard," Williams said. "I just can't believe the difference from just a week ago."

Some Washington merchants worried yesterday that business might be a long time in returning. A war against terrorism won't be like the Persian Gulf War, when journalists and contractors flooded Washington, said Linton Hopkins, the chef at D.C. Coast on K Street.

"In the Gulf War, that was in another country," Hopkins said. "When we're in a war that can hit our country, people aren't going to go out to eat as much. They're going to conserve money and their resources. They're going to stay home."

-- Andre Weltman (aweltman@state.pa.us), September 19, 2001

Answers

If all this havoc in our nation's capital doesn't, at long last, take the handcuffs off our intelligence agencies, so they can operate efficiently, nothing will.

-- Loner (loner@bigfoot.com), September 19, 2001.

Their sorest handcuffs are self-imposed.

http://www.theatlantic.com/issues/2001/07/gerecht.htm

-- L. Hunter Cassells (mellyrn@castlemark-honey.com), September 19, 2001.