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A 5 percent reduction in personal consumption, brought by acts of terrorism, is enough to push the U.S. economy into a recession. 

Acts of terror promote economic uncertainty and financial anxiety in people, who instinctively react by reducing spending.  A 5 percent reduction in personal consumption, which makes up nearly 70 percent of the U.S. economy, will decrease Gross Domestic Product (GDP) by   3.5 percent or negative 1.4 percent based on the 2015 third quarter GDP of 2.1 percent.

There are two aspects to terrorism’s impact on the economy.  The first is the immediate impact on commerce right after a terror attack.  The November terror attack in Paris de facto paralyzed commerce in parts of Paris, and later on in Brussels, for a few days.  Repeated economic disruptions like these can have severe economic impact on local and national economies.  

The second economic implication of terror acts is in elevating financial anxiety in the aftermath of every terror attack.  The terror act of September 11, 2001 immediately increased the level of money anxiety of people in the U.S.  In the month of the attack, September, the Money Anxiety Index jumped 5.1 points from 56.9 in the previous month and continued to climb up nearly 21 points when it peaked at 77.6 on December of 2001.

Research conducted and published by Money Anxiety shows that fear and uncertainty are the main triggers of financial anxiety.  When the level of money anxiety increases, people tend to react instinctively by reducing their spending and increasing their savings.  This is a normal reaction of survival and self preservation.  Conversely, people spend when safe.


 


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