Terrorism: Unfortunate Effects of Paris Attacks on the U.S. Economy

TerrorismAs chills went through our spines Friday night as the terrorist events in Paris unfolded, many of us here in America were likely asking, “Could it happen here?” The answer lies in history: 9/11 was the biggest terrorist event ever. While Homeland Security has done an excellent job in thwarting terrorist attacks on U.S. soil since 9/11, fighting modern-day suicide bombers is a huge task.

As an economist, my concern lies more in the aftereffects of these terrorist attacks on the minds of citizens. After all, one of the goals of terrorism is to instill fear in people. Will that fear result in consumers holding back on everyday life and on spending their money? The data already suggests retail sales are weak. Will the tide of terrorism fear put further pressure on an already suffering retail sector, especially in the U.S.?

Retailers Telling Tales of Consumer Spending Pullback in the U.S. Economy

Look at Macy’s, Inc. (NYSE:M), for example.

While presenting the company’s third-quarter financial results, the CEO of Macy’s said, “We are disappointed that the pace of sales did not improve in the third quarter, as we had expected. Spending by domestic customers remained tepid…” (Source: “Macy’s, Inc. Reports Third Quarter Results,” Macy’s, Inc., November 11, 2015.)

Sales at Macy’s dropped more than five percent from a year ago in the third quarter. The company has lowered its profit guidance for the entire 2015 fiscal year.

Nordstrom, Inc. (NYSE:JWN) recently reported a massive decline in its corporate earnings. In the chart below, you can see how quickly the company’s stock plummeted as Nordstrom reported its soft quarterly earnings.

Wal-Mart Stores, Inc. (NYSE:WMT), the world’s biggest retailer, has seen its stock fall 34% this year, as its sales and earnings growth struggle. (See my previous story “Wal-Mart Stock Price Collapse and the Harsh Truth About the U.S. Economy.”)

A broad range of American retailers are experiencing problems. It’s not just the discount stores or higher-end stores; consumer spending is anemic across the board. These terrorist attacks do not help boost the consumer confidence that is needed for retail sales to grow.

Nordstrom Chart

Chart courtesy of www.StockCharts.com

Government’s Data on Consumer Spending

Government data is backing up the pullback in consumer spending. In the chart below, you’ll see personal consumption figures in the U.S. economy going back 12 months.

FRED Chart

As you can easily see from the chart above, the rate of change in personal consumption in the U.S. economy over the past year has been in a gradual decline. This is the last thing you want to see if you are hoping for economic growth in the U.S. economy.

U.S. Economic Outlook for 2016

Going into 2016, I am pessimistic on the U.S. economy, as I see consumer spending, which makes up two-thirds of U.S. gross domestic product, is too soft. The psychological impact terrorist events, like the ones that happened in Paris on November 13, have on consumer confidence is not good.

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