GDP seen down after Katrina-Blue Chip
"U.S. Economy"09/10/2005
WASHINGTON (Reuters) - Top forecasters cut their outlook for U.S. economic growth in 2005 and said inflation would likely be higher in the aftermath of Hurricane Katrina, a closely watched survey released on Saturday showed.
Economists polled by the Blue Chip Economic Indicators newsletter said the devastation caused by the storm had caused a severe supply shock in the energy sector, driving up prices and threatening consumer spending through the end of 2005.
The survey was conducted on September 1 and 2, just days after the hurricane hit the U.S. Gulf coast, and Blue Chip warned that even the downgraded forecasts would likely be cut further as analysts digested the full impact of the storm’s wreckage.
The disaster was expected to slash 500,000 to 750,000 jobs from September non-farm payrolls—a loss that would erase more than three months of employment gains.
“Typically, dips in payroll employment due to natural disasters are short-lived, but in Katrina’s case (it) is expected to last much longer due to the extent of the damage and the flooding in New Orleans,” Blue Chip said.
The impact of the hurricane will also likely push the record U.S. trade deficit even wider, while shortages of building materials could add “appreciably” to the cost of new homes and commercial buildings, adding to inflation.
More than half of the 50 economists surveyed cut their growth forecasts, lowering the consensus for annualized GDP expansion to 3.5 percent in 2005 and 3.2 percent in 2006, each down a tenth of a percentage point from month-ago predictions.
Forecasts for growth in the third and fourth quarters were reduced by 0.3 of a percentage point to 3.6 percent and 3.0 percent, respectively, and Blue Chip said it expects further downgrades by next month’s survey.
Predictions of consumer inflation were bumped up to 3.1 percent in 2005 and 2.7 percent next year, up from 3.0 percent and 2.5 percent forecast a month earlier.
Manufacturing activity, both in the Gulf region and nationally, was also forecast to drop, while the tourism, transportation, agriculture and energy industries would be disrupted indefinitely, Blue Chip said.
While the newsletter said Katrina’s impact would likely duplicate that of prior hurricanes—a short-term slowing of economic activity offset in the longer-run by clean-up and reconstruction efforts—there were key differences.
“The near-term hit to consumer spending, business operations and employment in the region likely will be greater than usual due to the size of the region affected and the extent of the flooding in New Orleans,” Blue Chip said.
“The storm’s effects also will be more national in scope because of damage to important parts of the nation’s infrastructure and the bottlenecks this has created.”
Disposable incomes were expected to take a big hit from the hurricane as inflation cuts into incomes and upwards of one million people lose paying jobs.
“Real (disposable personal income) growth in the fourth quarter will almost certainly continue to be depressed by the effects of the hurricane through both inflation and lost wages and salaries,” the newsletter said.