Katrina-hit states may suffer for years

09/03/2005

MIAMI (Reuters) - Hurricane Katrina’s shadow may hang for years over the economies of Louisiana and Mississippi, with worries intensifying the states may not see the fast jobs and business bouncebacks common after U.S. natural disasters.

Louisiana and Mississippi have slowly growing populations with relatively low levels of income and education. Both poor states on the Gulf of Mexico are reliant on energy, leisure, ports, agriculture and manufacturing for jobs and tax revenues.

Together with Alabama, the third Gulf state struck by Katrina’s fierce winds, rain and flooding on Monday, the states account for only 3.1 percent of U.S. output while holding out-sized importance in the domestic energy and transport sectors.

Federal disaster declarations covered flooded New Orleans and a total of 90,000 square miles along the U.S. Gulf Coast, an area roughly the size of Britain. As many as 400,000 people had been forced from their homes.

Economic losses from the storm and the flooding could total more than $100 billion, economic modeling firm Risk Management Solutions said on Friday.

“It will take longer for Louisiana and Mississippi to recover from the storm than Florida last year,” said Mark Vitner, senior economist at Wachovia Corp. “Resource- and agriculture-reliant areas just don’t do as well.”

Florida, which had a relatively light encounter with Katrina last week, was struck in 2004 by four major hurricanes that caused about $45 billion in damage to homes, businesses and public facilities.

But Florida, with a steadily-growing population, one of the lowest jobless rates in the country and robust leisure and housing sectors, reported only short-lived losses of business, wages and taxes before entering a rebuilding boom that is still underway.

Similarly quick economic revivals, including extensive rebuilding and repairs fueled by insurance and federal government payments, occurred after earthquakes in San Francisco in 1989 and in Los Angeles in 1994.

But Vitner said eastern North Carolina counties heavily reliant on agriculture that were struck by hurricanes in 1999 actually lost residents after the storms and endured significantly higher unemployment levels which are only ending now.

“In a place like West Palm Beach (Florida), which is all tourism and retirement, the business structure is stronger,” said Robert Dye, senior economist at Economy.com in West Chester, Pennsylvania. “In New Orleans, we are not going to be looking at the typical post-hurricane bounceback.”

Dye said the U.S. Gulf region’s economy relied significantly on oil production and refining, ports handling agricultural products and a significant tourism-gambling sector that sustained businesses of all sizes.

“Some mid- to small-sized businesses will not bounce back quickly. Small manufacturers, with older equipment, may not necessarily choose to come up with the capital to rebuild,” Dye said. “There will be strong construction but I don’t think we will see the same thing as we do after other hurricanes.”

Dye said he had estimated, based on highly limited data and sketchy damage assessments, that the average number of workers in the New Orleans area would be reduced to about 516,000 in this quarter from 619,000 in the second quarter.

“And I don’t see that coming back to that 619,000-level until the second quarter of 2012,” Dye said.

Extensive flooding, especially in New Orleans, followed Katrina, a fact that may add to economic difficulties because a great portion of damages may be uninsured, Vitner said.

“Flood damage does not tend to be as insured. The lack of insurance is likely to cause the recovery to be delayed,” Vitner said.