Katrina’s economic impact far-reaching — and still evolving

Brad Foss: The Associated Press

Hurricane Katrina’s economic toll continues to mount — its cost evident in near-record energy prices, snarled shipping traffic, lost jobs and wrecked businesses. But nearly two weeks after landfall, its impact is shaping up as one of extremes.

There are many losers, most notably the 400,000 who have lost their jobs, many of whom are also homeless. But, as businesses rush in to claim their role in rebuilding and the commerce that once belonged to the Gulf region shifts elsewhere, there are also economic beneficiaries.

“The relief money is coming in much faster than it has for any other natural disaster that I can remember. That should help minimize some of the hit on consumer spending,” said Mark Vitner, an economist with Wachovia Corp. But “corporate profits are going to come under pressure as (businesses) pay more for raw materials and energy, yet are unable to pass along these higher costs to consumers,” he said.

The hurricane caused at least $125 billion in economic damage and could cost the insurance industry up to $60 billion in claims, Risk Management Solutions of Newark, Calif., said in an updated estimate on Friday. That’s significantly higher than the previous record-setting storm, Hurricane Andrew in 1992, which caused nearly $21 billion in insured losses in today’s dollars.

Airlines plagued by high jet-fuel prices are on the brink of bankruptcy and the industry is now seeking $600 million in tax relief from Washington. Consumers in many regions are still paying more than $3 a gallon for gasoline and home heating costs are expected to soar this winter. Contractors around the country are paying more for lumber and cement as building materials are diverted to Louisiana and Mississippi.

The extra energy tab to U.S. consumers could reach $140 billion over the next year, according to economist Keith Hembre at U.S. Bancorp Asset Management. “The historical pattern is for shocks of this nature to initially be absorbed roughly equally between lower savings and lower purchases for other goods and services,” Hembre said.
The storm is expected to lop off from 0.5 to 1 percentage point from U.S. gross domestic product in the second half of 2005 and about half that amount in 2006. In Europe and Asia, financial leaders warn that surging energy prices could stunt growth.

Yet, hotels outside the regions damaged by Katrina are benefiting as business conventions are relocated. Steel makers expect a short-term lift from the massive reconstruction. And oil and gas producers — in spite of damage to rigs and refineries — are reaping huge sums.
Thanks to Congress’ quick approval of $62.3 billion in federal disaster aid, economists say the immediate financial consequences may not be as dire as originally feared — though, longer term, they worry about the dent Katrina will leave on the federal budget.

Executives at Marriott International said in a conference call on Wednesday that conventions and meetings are being relocated from New Orleans to Washington, Chicago and New York. Moreover, once basic services are restored to New Orleans, the company anticipates demand from insurance adjustors and federal relief workers.

“From a financial perspective, it is a positive, as unfortunate as the tragedy is,” said Robert McCarty, the company’s executive vice president.

The trucking industry has had a similar bump in demand tied to Katrina. Schneider National of Green Bay, Wis., saw its truckloads increase by 13 percent last week and the Federal Emergency Management Agency in some cases paid for roundtrips to quickly get supplies to the Gulf Coast.
That said, the rapid increase in diesel prices has put smaller trucking companies out of business and has hurt the industry’s overall profit margins. “There’s always a lag in how you recover these costs,” said Dave Geyer, a vice president at Schneider.