All Wired and Wary

By Janice Castro

Colin Powell is a military man, not a marketing analyst, but he keenly recognized the mood of American consumers last week, when he talked about the "oscillations between euphoria and distress." The shock of war's beginning has passed, but Americans are left swinging between the moods of hope and resignation about the war and the economy. In one sense, consumers are hunkering down, digging in and embracing reality. They are postponing big decisions and avoiding the kind of purchases that fuel the economy: autos, houses, appliances. (Suddenly the old car doesn't look so bad.) Yet simultaneously they realize that the unthinkable event of war has happened without the economy collapsing in a heap. The recognition that the U.S. just may muddle through all this has prompted some fits of optimism, impulse buying and a search for diversion.

Most remarkably, a limited Desert Storm economy is springing up. Companies have boosted production of war-related books, maps, computer games, T shirts, yellow ribbons, American flags in all forms and just about anything red, white and blue. At Bloomingdale's in Manhattan, the brand-new Stars & Stripes boutique drew crowds eager to buy Ralph Lauren coffee mugs (price: $40), leather bomber jackets ($500) and beach towels sporting Old Glory. Suddenly teenagers are wearing camouflage pants.

Aside from spurts of patriotic shopping, many Americans were holding onto their wallets. In a TIME/CNN poll conducted last week by Yankelovich Clancy Shulman, 56% of the 1,000 adults in the survey said they believe the war against Iraq will hurt the U.S. economy. Asked whether the recession has influenced their spending habits, 34% said they were spending less, while 64% professed no change.

The fresh wave of sobriety among many consumers is likely to speed the shrinking of overbuilt parts of the economy, including retailing, real estate and car dealerships. Pleading for more money last week, officials in charge of the S&L bailout warned the Senate Banking Committee that real estate values are in a "free fall" that makes a mockery of attempts to estimate the total cost of the rescue. Meanwhile, the National Automobile Dealers Association predicted that 1 out of 5 car dealers may go out of business in the next two years.

Of all the industries reeling under the one-two punch of recession and war, none have been hit as hard as the travel business. Across the U.S. last week, airports were eerily quiet. Rumors of terrorist plots were rife; some companies took the opportunity to cut back on travel in the midst of the recession, knowing that the competition would be following suit. This week, in an unprecedented move, most U.S. department-store fashion directors, magazine fashion editors and Seventh Avenue buyers will stay home from the annual couture collections in Paris. The shutdown of European travel may cut off Pan Am's last hope of surviving Chapter 11 proceedings. Last week TWA laid off 1,360 of its 6,800 flight attendants and about 100 of its 3,300 pilots. Companies are even curbing travel to innocuous U.S. destinations. Said a Manhattan businessman: "I wouldn't even fly to Kansas or Fort Worth right now. I simply don't believe in taking unnecessary risks."

Travel cutbacks are hitting hotels and restaurants in Washington, Tokyo, Paris and other capitals as well. In Cairo the Egyptian government shut down the Pyramids and other monuments -- and thus most of the tourism industry -- to protect against terrorist threats. "It's a disaster. Because of the war, we are at a standstill," said Elhamy El Zayat, owner of one of Egypt's largest travel agencies. In Anaheim, Calif., Disneyland cut ticket prices for the first time ever, reducing one-day rates temporarily to $20 from $27 for people who live in Southern California. At a time when people are canceling vacations, local residents may help pick up the slack.

Besides acting as a damper on business, the war and recession have shifted fortunes from one industry to another. The travel business's loss, for example, is the telephone industry's gain. Video conferencing and faxing are booming as executives shift to meeting electronically instead of in person. Since the war started, AT&T's video-conferencing traffic has doubled, while U.S. Sprint's has tripled.

Some retailers are benefiting from overheated fears. Panicky consumers have rushed to military-surplus stores to buy gas masks. Many people want the masks for protection in case terrorists blow up chemical plants and oil refineries near them. Richard Muerdter, owner of the Eagle Army & Navy store in Louisville, says one frightened woman told him: "They're going to send terrorists over here to gas all of us." Some stores reported calls from anxious customers who wanted to know if Iraq's Scud missiles (top range: 560 miles) could reach the U.S. mainland. From California to Western Europe, there were scattered reports of people stockpiling such staples as flour, sugar and rice.

Most Americans focused on products and services delivering news and information about the gulf. In Maplewood, N.J., the Hammond map company was working to fill 70,000 orders for a Middle East Crisis map published in October. Cable-TV companies have enjoyed a surge in business too, largely because many viewers suddenly feel they must have CNN. Travel agents reported that customers were demanding hotels with cable TV. Said Michael Arrington, chairman of a chain of travel agencies based in Chicago: "Getting away from it all is no longer a draw."

Eager to tune in the overseas news, Americans bought shortwave radios and small portable TVs. Bookstores were jammed, their customers snapping up almost anything about Saddam and the Middle East. In Arlington, Va., Roy's Hobby & Craft Shop was selling the new $16 board game, Kuwait War. Superstitious types were buying crystals and such books as Nostradamus and Armageddon, Oil and the Mideast Crisis.

Patriotism was everywhere. Tattoo parlors were overwhelmed with orders for eagles and Old Glory. In some cities, even the antiwar protesters sported American flag lapel pins next to their peace pins. Said Greg Wald, owner of the All Nations Flag Company in Kansas City: "The first week of the war was like Memorial Day and the Fourth of July combined. It hit like an earthquake." Consumer-watchdog groups, though, warned of con men already hatching heartless schemes. Swindlers in Hauppauge, N.Y., pretending to be cemetery employees, were urging veterans last week to buy graveyard plots before fresh war casualties filled up the best spots.

For the millions of Americans who just want to send letters to loved ones on the front lines, Hallmark has introduced a homey new line of cards. One of them begins: "It takes a special person to serve our country . . ." Next, maybe the writers at the Kansas City firm will work on a set of soothing homilies for the 200 million anxious consumers on the home front. Having grown accustomed to the sudden scream of air-raid sirens in the darkness 7,000 miles away, they still have no idea how this war is going to change their lives and their economic futures.

With reporting by Mary Cronin/New York and William McWhirter/Chicago, with other bureaus