How America responds

October 09, 2001

Economic impact of terrorist attacks detailed by special ISR study.

ANN ARBOR---The terrorist attacks have had a significant impact on Americans' sense of personal safety and these heightened fears are linked to their economic expectations and behavior. The findings in this report were drawn from a special survey---How America Responds---conducted by the University of Michigan Institute for Social Research (ISR), the world's largest academic survey and research organization.

Consumers reporting that their sense of personal safety was greatly affected by the terrorist attacks were much less optimistic about future economic prospects. About 20 percent of all consumers surveyed between Sept. 15 and Oct. 7 reported that their sense of personal safety was shaken a good deal by the attacks, 29 percent reported that it was shaken somewhat, and 51 percent reported that it was not affected much. While 24 percent of the residents of the Northeast and Southern regions reported that their sense of personal safety was shaken a great deal, 14 percent of residents of the West and North Central regions said their sense of personal safety was shaken a great deal.

The level of the Index of Consumer Sentiment differed significantly across these groups, with those reporting their personal sense of safety shaken a great deal having an Index value more than 20 points lower than those reporting their personal sense of safety not much affected. Similar differences were found for the Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators.

"The loss in people's sense of personal security was linked to the decline in consumer confidence," says U-M economist Richard Curtin, who directs the U-M Surveys of Consumers, founded in 1946. Non-economic factors have on some occasions played a role in determining trends in confidence, but there are few other instances when such fears have been as dominant. "Unlike other assessments of economic risks, these fears represent a significant threat to the usual functioning of the economy," says Curtin.

Concerns about personal safety are unlikely to be easily or quickly calmed, even if there are no further attacks in the United States. "Restoring consumer confidence becomes more than just a matter of economic stimulus," notes Curtin. "A renewal in confidence may also require the restoration of a sense of personal safety among large parts of the population."

Moreover, the survey found, the economic impacts of this shaken sense of personal security range from how consumers will respond to the government's programs designed to stimulate the economy, to how they evaluate investment opportunities, and how they view potential prospects for jobs, as well as many other aspects of their economic behavior.

Rising Unemployment is the Top Concern

The How America Responds survey indicated that 61 percent of those surveyed expected the national unemployment rate to rise during the year ahead, compared with just 11 percent who expected a decline. A comparably pessimistic outlook has been recorded in the U-M Surveys of Consumers only during the recessions of the 1970s, 1980s and 1990s.

"Data from the Surveys of Consumers indicate that consumers now anticipate the unemployment rate to rise to about 6 percent by early 2002," notes Curtin. The unemployment expectations of consumers have proven to be an accurate forecast of actual changes in the unemployment rate. "On average, consumers have anticipated changes in the unemployment rate three quarters in advance of the actual change," adds Curtin.

Data from the How America Responds survey show that people's sense of personal safety also influenced their unemployment expectations. Among those whose sense of personal security was affected a good deal, 72 percent expected the unemployment rate to rise during the year ahead, compared with 58 percent of those whose personal safety was largely unaffected.

Reactions to Potential Tax Cuts

The reactions of consumers to federal economic policies to stimulate spending are also likely to be affected. The How American Responds survey asked consumers how they would use a new tax rebate of $1,000 if they would receive one this fall. Only about 15 percent said they would spend the additional tax rebate. The most common response, reported by 85 percent of all consumers, was that they would use the money to pay down existing debt or to rebuild their savings.

The researchers found that the decision about how to use the tax rebate was also influenced by consumers' sense of personal safety, although the size of the impact was small given the low overall number who said they would spend the rebate. Among those whose sense of personal safety was shaken a great deal, just 9 percent reported that they would spend the hypothetical tax rebate. In comparison, 16 percent of those whose sense of personal safety was not shaken much reported that they would spend the tax rebate.

"The sense of community and shared fate produced by the attacks have made consumers more in favor of spending programs that strengthen the economic safety net for those most harmed by the terrorist attacks' economic repercussions," according to Curtin. Once the high levels of anxiety begin to wane, a more broadly based tax cut program could be more effective than it would be now in restoring consumer demand.

Concern about personal safety was associated with less favorable buying attitudes. Among those whose sense of personal safety was shaken a great deal, 45 percent thought that it was a good time to buy durables, compared with 58 percent among those who reported that their personal sense of safety was not much or not at all affected.

Buying Stocks: Good or Bad Time?

Do consumers see current stock prices as an opportunity to invest? Nearly half of all Americans (46 percent) said it was a good time to put money into the stock market, compared with 9 percent who said it was a good time to withdraw money and 45 percent who said it would be best to leave their investments unchanged. The higher the level of their stock portfolios, the more likely consumers were to consider this a good time to invest. Among those with the largest amounts in stocks (over $250,000), two-thirds said it was a good time to invest.

Assessments of personal safety, however, did show a relationships with consumer willingness to invest in the stock market. Among those who said their sense of personal safety had been shaken a great deal, just 32 percent thought it was a good time to invest, compared with 54 percent of those reporting that their sense of personal safety was not much affected.

"While it is no surprise that psychology plays a role in stock market investments, it is quite surprising that people's personal sense of safety is so strongly connected to their investment choices," says Curtin. "It is clear that these concerns about personal safety also reflect more general and fundamental assessments of risks that have a far-reaching impact on people's economic behavior."

The survey results are based on a national list-assisted telephone sample, with interviewing conducted from Sept. 15 through Oct. 7. A randomly selected adult (18 years or older) was interviewed in 668 sample households, for an AAPOR response rate (3) of 59 percent. Standard errors for estimated percentages near 50 percent, reflecting the complexity of the design, are about 2 percentage points. Hence, the "margin of error" is estimated to be about 4 percentage points. The margin of error will vary for different statistics and will always be higher for statistics computed on subgroups. In addition to sampling error, use of the survey to describe the full U.S. household population is limited by the omission of non-telephone households, non-response to the survey, and failure to obtain accurate responses from sample persons.
EDITORS: Table will be available at

Established in 1948, the Institute for Social Research (ISR) is among the world's oldest survey research organizations, and a world leader in the development and application of social science methodology. ISR conducts some of the most widely-cited studies in the nation, including the Surveys of Consumers, the National Election Studies, the Monitoring the Future Study, the Panel Study of Income Dynamics, the Health and Retirement Study, and the National Survey of Black Americans. ISR researchers also collaborate with social scientists in more than 60 nations on the World Values Surveys and other projects, and the Institute has established formal ties with universities in Poland, China, and South Africa. Visit the ISR Web site at for more information.

University of Michigan

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