WTC Attacks to Result in Economic Output Loss of $83 Billion and 57,000 Jobs for City

New York City Partnership & Chamber of Commerce

NEW YORK, November 15, 2001 — New York City's economy will sustain a gross loss of approximately $83 billion and 57,000 jobs over three years due to the terrorist attacks that destroyed the World Trade Center on September 11th, according to an Economic Impact Analysis released today by the New York City Partnership & Chamber of Commerce. The report reflects the direct impact of the attacks after factoring in the effects of a slowing local and national economy immediately prior to September 11th.

Even after insurance payments and federal emergency funds to defray the cost of rescue and cleanup, the New York City economy faces a net impact of at least $16 billion in lost economic output. This assessment is based on the assumption that New York's recovery from recession will match the pace of the nation's recovery. Broken down, insurance payments should amount to $37 billion, but should have a positive impact of $47 billion as a result of various multiplier effects. Similarly, federal reimbursement for cleanup costs is estimated to be $14 billion, with an impact of $20 billion after the multiplier effect.

The attack on the World Trade Center also will result in a loss of 125,000 jobs during 2001. This job loss is over and above what the city would have lost in the recession. While many lost jobs will return, the city will still have a net loss of about 57,000 jobs at the end of 2003, according to the Partnership, which worked closely with seven of the nation's leading consulting firms and economists from the city, state and Federal Reserve Bank of New York, in preparing the analysis.

The Partnership was aided immensely by the pro-bono contributions of seven leading consulting firms — A.T. Kearney, Bain & Company, Booz Allen Hamilton, the Boston Consulting Group, KPMG, McKinsey & Company, and PwC Consulting. The seven firms combined to provide comprehensive assessments of 14 separate private industry sectors, which served as the underlying basis for the study's larger findings. In addition, Harris Interactive conducted online consumer research from October 12-18. The data were collected from completed surveys from New York City residents, tri-state residents within commuting distance, and International/U.S. residents beyond commuting distance.

"Our efforts in the near term must focus on a number of critical areas," said Sanford I. Weill, Chairman and CEO of Citigroup. "We must develop a comprehensive blueprint for downtown's future and quickly restore its infrastructure. We must execute a five-borough strategy to retain and expand the financial services industry and restore overall confidence by investing in comprehensive security measures. We also must promote business and tourism in New York to a national and international audience that believes damage extends over a wide area of Manhattan, rather than just the 16-acre Trade Center site, which remains closed."

"If the public and private sectors respond to the immediate challenges, there are several reasons for optimism about the future," said Tishman Speyer Properties President Jerry Speyer. "Consumers around the country and the world continue to believe that New York is an attractive and exciting place to visit, and local residents continue to believe it is a great place to live. In addition, sector analysis determined that New York would continue to be a leader in the global economy, especially in such industries as financial services, media and entertainment, professional services and health care."

"The World Trade Center attack caused massive damage to New York's economy — damage that can be managed if we act quickly," added New York City Partnership President Kathryn S. Wylde. "Minimizing the long-term impact, however, requires the concerted and coordinated action of the public and private sectors. The projected $16 billion loss could become much greater if we encounter significant problems that cause the city to lag behind in the nation in recovering from this recession. Such problems could include delays in or inadequate third party reimbursement or an erosion of confidence in the city's future."

As expected, Lower Manhattan has absorbed the greatest damage. In addition to the more than 4,000 lives lost, nearly 29 million square feet of office space was lost, severely damaged or temporarily taken out of commission. Another half million square feet of retail, mainly in the underground mall of the World Trade Center, was destroyed. The combination of real estate and infrastructure damage forced more than 100,000 workers to relocate to different offices or work from home. Given the current state of Lower Manhattan's infrastructure, the area's remaining 270,000 jobs are considered to be at risk.

The financial services industry, which generates 24 percent of the city's $440 billion annual economic output and 14 percent of the city's tax revenue, has been severely affected. From September 11th through the end of the year, the sector will account for $4.2 billion in economic output losses. Seven major financial firms have been forced to temporarily relocate. Of the financial services jobs that have left Lower Manhattan, about 32,400 have relocated within the city and 19,000 have left the city, at least temporarily.

The New York travel and tourism industry, which has enjoyed annual revenue of $34 billion, is likely to lose from $7 billion to $11 billion in revenues by the end of 2003 and will probably lose 25,000 jobs in 2001. These reductions are spurred in large part by a significant drop in lucrative international traffic. A Harris Interactive survey of consumers, conducted as part of the report, suggested that travel to New York from Britain and Canada would decline about 40 percent in the fourth quarter when compared to levels anticipated before the attack.

The retail sector also is expected to absorb substantial losses. By 2003, revenue from retail business in the city is expected to drop by $7.6 billion from a base of $51 billion a year. In the days following September 11th, sales revenue from department stores, specialty shops and other retail outlets in Manhattan plunged 30 to 40 percent. While seasonally adjusted September retail sales in the nation dipped 2.6 percent from the previous month, they slid 14 percent below anticipated levels in New York City.

Prior to September 11th, thousands of small businesses, employing more than 100,000 people, were located south of Chambers Street in Manhattan. Approximately half occupied niches in financial and professional services. More than 700 small businesses located in the World Trade Center complex were destroyed or sustained extensive damage. Many other small businesses in the vicinity have seen their sales decline by up to 80 percent because of damage and disruption.

Among the Partnership's recommendations:

Develop a Long-Term Plan in the Near Future: Business, labor and community leaders need to work with the city and state to come to consensus on an overall vision and a well-defined plan for Lower Manhattan before cleanup is completed in mid-2002. Even though it may take years to implement, a credible and comprehensive plan itself creates business confidence.

Address Infrastructure Challenges: In addition to expanding temporary transportation measures in Lower Manhattan, the MTA, Port Authority and Department of Transportation should work together to speed recovery of transportation access, identify areas for improvement and establish links between services. Telecommunications and energy systems should be rebuilt to 21st Century standards for capacity, resilience and access to alternate systems in the event of disaster.

Promote New York City: City and state officials as well as tourism and business leaders must work together in getting the message out that New York City is open and remains the business and cultural capital of the world. Part of this effort will involve attracting company meetings and conventions to New York to demonstrate support for the city.

Support Small Business: Targeting corporate and public procurement to New York City firms is an immediate way to assist the thousands of small businesses that have suffered losses. A range of steps are being taken by the New York City Partnership and public entities to provide flexible capital financing, utilize philanthropic funds and support relocation and recovery. These efforts should be expanded wherever possible.

Restore Confidence in Financial Community: Financial services firms, concentrated in Lower Manhattan, are concerned about the need to disperse their people and facilities, which can be accomplished within the five boroughs. The aftermath of the attacks demonstrated the need for more redundant systems across the industry and for improved security around such functions as custody of securities, and the clearing and settlement of trades.

Support Enhanced Security Measures: The private sector should support government actions to improve security; work with the city and state to develop local security protocol in high-traffic and landmark locations; and support emergency preparedness planning.

The mission of the New York City Partnership is to advance the interests of New York City business, recognizing that a vibrant economy is essential to the future of the City. This mission is especially critical after the tragedy of September 11th, which renders our city significantly challenged in what were already troubling financial times. The Partnership is marshalling all of its resources towards the recovery and rebuilding of our city.

About the Report

Booz Allen wrote two major sections of the report: "Economic Impact on the Retail Sector" and "Economic Impact on the Information Technology and Telecommunications Sector."