Understanding Katrina's Wrath and Its Implications for the U.S. Economy
Understanding Katrina's Wrath and Its Implications for the U.S. EconomyCHICAGO, Sept. 9 Hurricane Katrina was the worst natural disaster to hit the U.S. economy on record, and because of its strategic role in trade, transportation, and oil refining, has more far-reaching costs associated with it compared to other disasters. "It is also different because of the population that was hardest hit -- the very poor. They don't have the resources or insurance coverage necessary to make quick repairs, delaying the bounce back in activity associated with rebuilding," reported Diane Swonk, chief economist of Mesirow Financial, in the latest issue of her monthly newsletter, Themes on the Economy available at http://www.mesirowfinancial.com/pdfs/newsletters/themes/themes_0905.pdf .
Katrina's short- and long-term economic impact:
-- Disruptions to employment, incomes, business, and higher energy prices
are expected to shave at least 0.5% off second half of the year
growth. The persistence of high natural gas prices is worrisome.
"Heating bills could surge as much as 70% in the Midwest, which will
put a damper on holiday spending in December," said Swonk.
-- Growth will reaccelerate as rebuilding gets underway in 2006. "On net,
growth is expected to move back into the 4% range ... those gains,
however, are expected to mask the squeeze on spending caused by
persistently high energy prices," added Swonk.
-- Greenspan may want to pause in September, however, his pending
retirement and waning influence with other members of the FOMC
suggests that he may not get his wishes this time around. Look for the
Fed to raise rates at their September and November meetings.
Hurricane-related losses should allow the Fed to hold the fed funds
rate at 4% at its December meeting. Moves, thereafter, will be
contingent on who replaces Greenspan.
-- Costs associated with the storm are expected to force the Bush
Administration to scrap its agenda for the fall session of Congress.
"Proposed cuts in Medicaid and income support programs look
particularly ill-timed given those worst affected by the crisis,"
commented Swonk.
-- "There will obviously be many winners and losers, however, the real
challenge is trying to stop unscrupulous individuals and businesses
who try to game the system for their own gains," noted Swonk.
"The U.S. economy may not be able to fight Mother Nature, but it can make surviving her wrath a lot easier than anywhere else," said Swonk.
The September issue of Themes on the Economy available at http://www.mesirowfinancial.com/pdfs/newsletters/themes/themes_0905.pdf as well as archived issues can be found at http://www.mesirowfinancial.com/ .
Mesirow Financial is a major independent financial services firm offering Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate. Founded in 1937, Mesirow Financial is an employee-owned, private company with more than 1,000 employees in 26 offices across the country and in Puerto Rico. The firm has $25.5 billion in assets under management, advisory and custody and nearly $150 million in capital. For more information about Mesirow Financial, visit its Web site at http://www.mesirowfinancial.com/ .
Available Topic Expert(s): For information on the listed expert, click appropriate link. Diane Swonk http://profnet.prnewswire.com/ud_public.jsp?userid=508294
Source: Mesirow Financial
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