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Hurricanes' ripple effects to hit economy soon

Katrina put almost 300,000 out of work, and higher energy prices will drag down the GDP.

WASHINGTON - The number of people out of work because of Hurricane Katrina has reached 279,000, and many more job losses are expected because of Hurricane Rita.

The lost jobs, coupled with surging energy prices, are expected to deliver a sharp blow to economic growth in the second half of this year. Also of concern is the possibility that any further unexpected spikes in energy prices could prolong the economic weakness.

The Commerce Department reported Thursday the economy was growing at a solid 3.3 percent annual rate in the April-June period, but that rate is sure to be weaker in the July-September quarter.

"The problem is the combined effects of the disruptions from Katrina and Rita, plus the ripple effects in the economy from higher energy prices," said Nariman Behravesh, chief economist at Global Insight, a consulting firm in Lexington, Mass.

Before the hurricanes sent oil prices briefly above $70 per barrel and gasoline up to $3 per gallon, analysts had forecast that economic growth in the third quarter would show an annual rate perhaps as high as 4.5 percent.

Behravesh said he now thinks growth in the gross domestic product growth would be closer to 3 percent in the third quarter and around 2.8 percent in the fourth quarter. The GDP measures the value of goods and services produced within the United States and is the best barometer of economic fitness.

It will not just be growth and jobs that will be hurt. Corporate profits will take a hit as companies cope with higher fuel bills.

Behravesh and other analysts are forecasting a rebound to faster growth next year as the rebuilding gets started. They say those forecasts were based on a calming of energy prices. But that is in doubt when it comes to natural gas, where analysts predict parts of the country could see increases this winter of as much as 70 percent.

"Natural gas prices are going to go through the roof in the next couple of months and that is going to hurt a lot of families," Behravesh said.

The Labor Department reported Thursday that job losses from Katrina climbed by 60,000 last week to 279,000. Last week's Katrina-related increase compared with 108,000 two weeks ago.

Jobless claims declined to 356,000 last week, down from a two-year high of 435,000 the previous week. Still, analysts said those figures probably would climb again as people forced out of work by Rita, which struck the Texas-Louisiana coast last weekend, make their way to unemployment offices.

The government will report on September unemployment Oct. 7. Analysts are looking for the rate to rise to 5 percent from a four-year low of 4.9 percent in August. They said business payrolls could lose 250,000 jobs related to Katrina.

This decline will be partially offset by a gain of 150,000 jobs elsewhere, leaving job losses for the month around 100,000 for September.

The job loss from September through December because of Katrina, Rita and higher energy costs could reach 400,000, analysts said.

David Wyss, chief economist at Standard & Poor's in New York, said he looked for the weekly jobless claims figures to begin rising again as Rita-related claims are filed, but he estimated the effect from Rita would be about one-fourth that of Katrina.

"Katrina was off the scale. There are no jobs in New Orleans right now," he said. "Rita was a more normal hurricane where the jobs will come back pretty quickly."

The Commerce Department's estimate of a 3.3 percent growth rate in the second quarter was unchanged from the estimate made one month ago. An inflation gauge tied to the GDP that is closely watched by the Federal Reserve rose at a moderate rate of 1.7 percent in the second quarter, slightly higher than estimated a month ago.

[Last modified September 30, 2005, 01:35:17]