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How About the CNN Efffect?


When a U.S.-led war with Iraq begins, Americans will watch television, and a lot of it -- maybe even more than usual. While that might mean a temporary slump in consumer spending, most economists doubt it will be enough to swamp the broader economy.

In the days before a U.S.-led war with Iraq, which could start at almost any moment, much has been made of the so-called "CNN effect," a phrase coined during the first Gulf War, when Americans gathered 'round TV sets to watch the ghostly green images of a night-time air assault on Iraq.

According to Nielsen Media Research, which keeps track of TV-watching data, about 85.6 million viewers in 50.6 million U.S. homes -- about 54 percent of all homes with TVs -- tuned in to the first night of the Gulf War, making it one of the biggest TV-watching events in U.S. history.

In comparison, about 79.5 million people in 52.9 million homes -- roughly half of the TV-owning nation -- tuned in for networks' prime-time coverage on Sept. 11, 2001, the day of terrorist attacks that killed about 3,000 people and destroyed the World Trade Center in New York and damaged the Pentagon in Washington.

Neither Nielsen nor CNN would predict how many homes might tune in to the first night of the latest conflict, but it seems highly likely that, at least in the first days of the war, big numbers of people will be glued to their sets...

"It will temporarily depress some economic activity, in much the same way a snowstorm could," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute, another private research firm, which predicts the dates of economic recessions and expansions.

"As long as there's not a permanent shift in behavior, we're going to go back to doing what we normally do," Achuthan said, "and we could end up making up for lost time, so we could get a bit of a bounce after that pause in spending."

Possibly the worst thing that could happen is that the temporary disruption of activity could throw a wrench in the crunching of economic numbers for the month, much as a big snowstorm skewed much of February's data.

In other words, Alan Greenspan, who was confused about the economy's health on Tuesday, might stay confused for a while.

But if the war goes badly -- a remote possibility, according to most analysts -- or if terrorists strike the United States, or if severe damage is done to the supply of oil from the Middle East, sending oil prices skyrocketing, then consumers likely will lose their appetite for shopping, and that would be very bad news for the economy.

"Right now, [our] leading indicators clearly show that the U.S. economy is in a window of vulnerability," Achuthan said. "This means that, depending on the course of oil prices and geopolitical events, the economy can be tipped into a new recession."
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