Katrina washes away 400,000 jobs
WASHINGTON — The human cost of Hurricane Katrina is evident with every heartbreaking image from the Gulf Coast. Now the government has taken its first crack at determining the economic tally.
The verdict from the Congressional Budget Office: not good, though maybe not as bad as first envisioned.
In report Wednesday to congressional leaders, the CBO predicted Katrina will result in job losses totaling 400,000 in the coming months. Also, it is expected to reduce growth by as much as a full percentage point in the second half of this year and push gas prices up by 40 percent from their levels in midsummer.
These impacts were described as “significant but not overwhelming.” Still, the CBO said the economy could suffer a more serious blow if energy supply disruptions along the Gulf Coast last longer than expected.
“Last week, it appeared that larger economic disruptions might occur, but despite continued uncertainty, progress in opening refineries and restarting pipelines now makes those larger impacts less likely,” the office’s director, Douglas Holtz-Eakin, wrote.
The CBO estimated that gasoline prices will peak in September at about 40 percent higher than in midsummer. That could be near, given that the average retail price of regular unleaded gasoline climbed by 46 cents last week to $3.07 per gallon, 34 percent above the July nationwide average.
The spurt in the cost of gasoline will reduce overall economic growth by 0.4 percent in the July-September quarter and by 0.9 percent in the October-December period as consumers cut back on spending in other areas by around $38 billion at an annualized rate, the CBO estimated.
The report said overall economic growth, as measured by the gross domestic product, could fall by between 0.5 percentage point and a full percentage point for the second half of this year.
Before the hurricane, private economists were forecasting growth in the second half would come in between 3 percent and 4 percent following growth of 3.6 percent in the first half of this year.
There have been some promising signs on the energy front in recent days with crude oil prices dropping as more Gulf Coast production resumes. The Energy Department said Wednesday that domestic oil production and refinery output should return to prehurricane levels by November.
Private economists said they generally agreed with the CBO forecasts.
“Energy is the big wild card. We just don’t know where prices will be,” said David Wyss, chief economist at Standard & Poor’s in New York. “It will be a question of how fast oil refineries and oil pipelines come back.”
The CBO said estimates of the impact on employment in September range from a decline of 150,000 jobs to a drop of as many as half a million jobs.
Some of that impact, however, will be offset in coming months, the CBO said. The report said employment growth over the final four months of this year would be 400,000 below the 600,000 to 800,000 pre-Katrina estimates.
Congress has approved $10.5 billion in emergency spending with more on the way. The White House said Wednesday that President Bush will ask lawmakers to approve an additional $51.8 billion to cover the costs of federal recovery efforts.
Many private budget experts are predicting increased federal spending for Katrina will push up next year’s deficit by $100 billion or more, putting in jeopardy Bush’s efforts to cut the deficit in half by 2009.