Will Rita be one storm too many for U.S. economy?

The physical devastation of Hurricane Rita will have a ripple effect on a national economy already coping with the short-term strain imposed by Hurricane Katrina, economists say.

Even if extensive evacuations minimize deaths and injuries, the damage to housing, highways, oil refineries, offshore oil wells and other businesses is expected to result in significant job losses, slower economic growth and increased inflation in the short term.

What does that mean locally?

“That’s the million-dollar question,” said Kurt Foreman, senior vice president of economic development at the Greater Shreveport Chamber of Commerce.
“We don’t know the full repercussions from Katrina yet.”

Thousands of Katrina evacuees have temporarily settled in Shreveport-Bossier City, snapping up available apartments and rental housing. Local businesses have hired many of those residents, who unintentionally arrived at a time when many companies were having trouble filling positions, Foreman said.

But nationwide, job losses are climbing in the wake of Katrina. Initial claims for unemployment rose by 8,000 in the week ended Sept. 17 to 432,000 on a seasonally adjusted basis, the Labor Department said Thursday.

The department said that the biggest increase in claims for the week ending Sept. 10 occurred in Louisiana, an increase of 49,665, with most of those claims related to the hurricane.

The state data lags one week behind the national claims information. As of Thursday, 157,937 people in Louisiana had been approved for unemployment benefits or disaster assistance since Hurricane Katrina. In comparison, the state processed 193,119 claims in all of last year.

Many of the unemployed may find jobs once rebuilding begins, said Steve Walker, Chase Northwest Louisiana market president.

“You’re talking about a huge amount of money that’s going to flow into our state. That’s going to create a lot of economic activity,” he said. “But I think the biggest issue will be getting enough workers in to do the work” given the widespread damage from back-to-back hurricanes. But, beyond that, experts aren’t certain what may happen.

The nation’s economic growth slowed to 3.3 percent the second quarter, down from 4.3 percent in the first three months of the year, according to the Commerce Department. On Thursday the Conference Board announced its index of leading economic indicators — used as a yardstick to predict future growth — fell by 0.2 percent in August after a 0.1 percent drop in July.

The cumulative effect of the two storms might slow economic growth to 2 percent under a worst-case scenario, said Conference Board Economist Ken Goldstein.

Goldstein pointed to the four hurricanes that struck Florida last year, the terrorist attacks of Sept. 11, 2001, the Northridge earthquake that struck southern California in 1994 and Hurricane Andrew in 1992. “As bone jarring, as mind numbing as they were, we didn’t go into recession,” he said.

Anirvan Banerji, director of research at the Economic Cycle Research Institute in New York, said the economy is not vulnerable to an economic shock causing a recession at the moment. “It depends on where you are in the business cycle,” said Banerji. “The dominoes are not lined up for them to be tipped over by a shock.”

The Insurance Information Institute insists the industry will be able to absorb the cost of both storms without affecting premiums for most customers. However, people who live near coastlines in hurricane zones can expect to pay higher rates, said institute spokeswoman Jeanne Salvatore.

“The insurance industry does have the capital for Katrina and Rita,” Salvatore said. “It is in the disaster business, after all.”

Swiss Re, the world’s second largest reinsurer — or insurer for insurers — estimates that its own claims for Hurricane Katrina will top $1.2 billion, while insured losses for the entire industry could top $60 billion.

By mid-September, claims adjusters estimated that Katrina had ruined more than 160,000 homes in Louisiana and caused more than 1,000 deaths. How much damage Rita will inflict is the next big question.

“You wonder how many hits the heavyweight can take before he goes down,” Sean Snaith, director of University of the Pacific’s Business Forecasting Center, said Thursday.

Even so, Snaith and other economists said it would be difficult for two natural disasters to push an otherwise growing economy of $12 trillion completely into recession. Here’s a look at several sectors of the economy where the shock will be felt the most:

Energy costs

The ripple effect will go beyond just an increase in gasoline prices. Home heating oil, natural gas and even electricity bills will be higher once the effects of the two hurricanes work their way through the economy.

Hurricane Katrina exposed the vulnerability of the nation’s energy supply lines, raising gasoline prices above $3 a gallon and sending heating oil prices to record highs. With refineries and rigs around Houston evacuated because of Rita, that will further reduce energy supplies, at least for the short term.

”It’s really come right through America’s energy heartland,“ said Ed Ahnert, a former Exxon Corp. executive who teaches at Southern Methodist University. Refineries “were operating at maximum capacity and then you clobber the refineries in Louisiana,“ he said.

Few experts expect the price of energy to drop substantially over the next year. Guy Caruso, who heads the Energy Information Administration, expects the price of crude oil to remain above $55 a barrel throughout 2006 compared with an average price of about $30 a barrel between 2000 and 2004.

Gas prices will average about $2.32 a gallon next year barring any major disruptions, Caruso forecasts.

Natural gas storage for the upcoming winter heating season has suffered because Hurricane Katrina damaged gas wells in the gulf and a hotter than normal summer caused a higher demand for electricity and natural gas.

Building supplies, housing

Not only is it getting more costly to transport building supplies, but the cost of oil-based materials, such as asphalt and roofing supplies, also are expected to spike, said Ken Simonson, chief economist for the Associated General Contractors of America.

A shortage of cement in 32 states and the District of Columbia also concerns contractors because ports in New Orleans and Mobile, Ala., account for 12 percent of U.S. cement imports.

The hurricanes also are dashing hopes that housing prices will fall or level off. Housing demand from hurricane evacuees is causing run-ups in prices in areas like Baton Rouge.

The National Association of Realtors forecasts housing prices to continue to increase because of low interest rates.

Consumer spending, Wal-Mart

Consumer prices rose 3.6 percent in the 12 months ending in August even before Hurricane Katrina struck the Gulf Coast.

At the very least, consumer inflation should edge upward in the next few months because of higher energy costs. But experts are split on whether prices will move higher for other products as well, and how long any inflation will last.

Bernard Weinstein, an economist at the University of North Texas, predicts higher prices at supermarkets and department stores as businesses pass along their higher transportation costs.

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