HURRICANE IMPACT: Signs of slowdown in GDP growth

HURRICANE IMPACT: Signs of slowdown in GDP growth

There is growing evidence that consumers are being rocked by the aftereffects of hurricanes Katrina and Rita

There is growing evidence that consumers are being rocked by the aftereffects of hurricanes Katrina and Rita. If that is the case, the stage is set for an economic slowdown for months to come. Economists are citing high energy prices and, to a lesser extent, the number of people displaced as the brakes on economic growth.

The Bureau of Labor Statistics reported that in August the consumer price index (CPI) on energy rose 5%, leaving the compound annual rate of energy price growth for the three months ending in August at a whopping 38.2%. Hurricane Katrina made landfall in late that month, which means the CPI only reflects the tip of the iceberg in terms of the Katrina aftermath.

Personal income dropped 0.1% ($5.3 billion) in August, reported the Bureau of Economic Analysis (BEA). Meanwhile, consumer spending dropped 0.5% ($47.2 billion).

“The August estimate of personal income reflects the effects of Hurricane Katrina,” BEA stated in a news release. “Rental income of persons and proprietors’ income were reduced [by an annual rate of] $100 billion, primarily reflecting uninsured losses of residential and business property.”

U.S. jobless claims rose 21,000 to total 390,000 for the week ending Oct. 1, according to the Dept. of Labor. Bloomberg reported about 74,000 claims last week were the result of either Katrina or Rita.

The government has not yet released comprehensive retail sales data for September, which would give a bigger picture of Katrina’s aftermath, as well as some indication of Rita’s impact. But the The Wall Street Journal today reported that discounters are announcing sales boosts. Wal-Mart Stores Inc., Costco Wholesale Corp. and Target Corp. all reported sales growth in September, driven in part by gasoline price inflation, as well as sales of essentials such as bottled water and batteries.

Ken Simonson, chief economist for the Associated General Contractors of America, predicts that GDP growth—the most comprehensive measure of U.S. economic growth—will slow to 2 to 3% until mid-2006 because of energy spikes caused by the hurricanes.

“There will be a slowdown in the rate of economic growth for a few quarters,” Simonson said. “People will spend more money on heating homes and less on consumer nondurables and services. It’ll reduce the demand for the whole economy and reduce the amount of general freight.”

On the manufacturing side, there continues to be strong signs of growth. The Institute for Supply Management (ISM) said the manufacturing index was 59.4% in September. (Any level above 50% indicates growth). New orders, production expansion, increasing employment and increasing prices gave that sector a boost.

“While energy prices and the impact from Hurricane Katrina are major concerns, the manufacturing sector has regained significant momentum,” said Norbert J. Ore, chair of ISM.

“The larger impact on the economy will be due to energy prices more than anything that has been directly affected by the hurricanes,” Chris Brady, president of Commercial Motor Vehicle Consulting, told FleetOwner. “The area hit is not a population sector, so lost retail sales as a result of the displaced persons from the hurricane will be a small factor. So the implication is really what’s going on in the energy market and how U.S. consumers are going to respond to energy prices.”

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