Tumult in Gulf Region but Little Early Effect Across the Nation
By DAVID LEONHARDT and EDMUND L. ANDREWS
The broad American economy has largely withstood the early effects of Hurricane Katrina, even as residents of the Gulf Coast suffer through a regional economic disaster with few equals.
The flooding has displaced about one million workers in the Gulf Coast region, many of whom will not be able to resume their jobs anytime soon. While some employees of large companies are still receiving paychecks, Wal-Mart stopped paying workers in the area four days after shutting its stores, and McDonald's and UPS have not paid regular wages to idled employees since the storm hit.
The hurricane has also bottled up grain shipments on the Mississippi River, hurting farmers and grain exporters, and saddled households with even higher energy costs.
The effect of the damage to oil rigs and refineries in the gulf is the greatest uncertainty. But contrary to early fears, the nation's transportation network has not become overwhelmed so far, and despite spot shortages drivers have generally been able to buy gasoline. The price of crude oil fell 2 percent on Friday - to $67.57, up only $1 from a week ago - as a large importing terminal off the coast of Louisiana reopened and the International Energy Agency announced that it would release emergency oil supplies.
As corporate executives scrambled to get in touch with employees who lived in Katrina's path, most said they had seen little overall effect on their businesses.
"It's a little too early to tell," said Fred Beljaars, an executive vice president of DHL, the shipping company. "But the first indications are that there is no real impact on trade."
Apple Computer, Intel and National Semiconductor all reported that their operations were running normally. So did Harley-Davidson and Whirlpool. Nissan halted production Monday morning at a plant in Canton, Miss., that builds Titan pickup trucks, but reopened it Wednesday.
Economists said that the storm and its aftermath had raised the risks of a downturn. One major question is whether the damage to oil refineries aggravates what had already been a growing burden caused by soaring energy prices.
No forecaster knows how consumers will react to seeing gas lines reminiscent of the 1970's and hearing the president urge people to drive less. If oil production or refining does not return to pre-storm levels for months, a spike in energy prices could prompt households to cut their spending and cause other hardships.
"The difference with this disaster is that we have an energy shock," said Laurence H. Meyer, a senior economist at Macroeconomic Advisers, a forecasting firm.
But the most likely outcome, according to forecasts that Wall Street firms revised after the storm, is a slowdown in growth during the rest of this year and a pickup next year, as New Orleans and southern Mississippi are rebuilt.
"Clearly, this will be a challenging time for the economy," Treasury Secretary John W. Snow said on Friday after meeting with Alan Greenspan, the chairman of the Federal Reserve, to discuss the storm's impact. But, Mr. Snow said, "The normal pattern is that after the negative consequences, we get into a rebuilding mode, and that rebuilding mode takes you to higher G.D.P. levels."
In a sign that the recovery could make the sprawling construction sector even busier than it has been during the recent housing boom, the price of lumber jumped last week.
"Personally, I'm loading up on everything," said Bruce Scanlon, manager of Boulder Lumber, a Colorado store that sells the bulk of its supplies to building contractors. "No one is taking any chances."
The fast economic recovery from the Sept. 11 attacks showed that traumatic events often have a relatively small economic impact. On the day of the attacks, the economy had been shrinking for about six months; it was growing again by the end of the year, at least outside of the New York area.
There is a major difference this year, however: the Fed and the Bush Administration have less in their arsenal to fight economic weakness today than they did in 2001.
A soaring budget deficit makes it harder for the White House to propose tax cuts than it was four years ago. Mr. Snow dismissed suggestions last week from the House Republican whip, Roy Blunt of Missouri, that Congress take up a stimulus package that goes beyond money for reconstruction.
And the Fed has been raising its benchmark interest rate since the start of last year to ward off inflation, a policy that Anthony M. Santomero, president of the Philadelphia Fed, said last week would probably continue.
But Katrina complicates the Fed's job.
"The problem, and every Fed official is fully aware of this, is that every recession since 1971 has been preceded by two things: higher oil prices and an increasing Federal funds rate," said Richard Yamarone, chief economist at Argus Research. If Katrina leads to a sustained increase in oil prices, Mr. Yamarone said, the Fed could have to "navigate between skyrocketing prices and stagnating economic growth."
Consumers also have less of a cushion than they have had at many other points. In July, the nation's savings rate fell below zero, to its lowest level on record, the Commerce Department said last week, suggesting that households have little ability to absorb higher oil prices without cutting other spending.
But the forces supporting growth might be just as strong. Katrina's aftermath caused a fall in long-term interest rates, potentially prolonging the housing boom, which has been showing signs of slowing.
Americans have also been unwilling to change their driving habits, despite oil prices that had doubled between early 2004 and last month.
"You still have to get from Point A to Point B," said Paul Noonan, a 41-year-old engineer from Boston, while stopped at a rest stop in upstate New York on his way to Minnesota last week. People talk about traveling less, Mr. Noonan said, but he did not think they were really doing so.
But the economy has been growing at a healthy clip in recent weeks, and few forecasters think it is close to tipping into recession.
"Fortunately, this happened in a strong economy," said Henry A. McKinnell Jr., chief executive of Pfizer, the world's largest drug maker and the chairman of the Business Roundtable, a lobbying group of chief executives. "But I don't think anyone would say it will be positive."
Even if the economic impact ends up being narrow, the storm has still created a challenge unlike any other the country has faced recently. A local economy that employed a million people has suddenly shut down.
Some of those people have been able to continue working elsewhere. Of the several thousand Wal-Mart employees from the 36 stores that were still closed on Friday morning, four have relocated to Pensacola, Fla., and are working for the company there, said Melissa O'Brien, a spokeswoman. Wal-Mart is also giving emergency grants, typically of about $250, to some employees.
UPS is helping Gulf Coast workers put in for holiday time or unused vacation so they could continue to be paid, said Norman Black, a company spokesman. Walt Riker, a McDonald's spokesman, said the chain was trying to locate workers and considering ways to help them financially.
DHL, Pfizer and Starbucks all said they were continuing to pay employees who were unable to work because stores and offices were flooded or destroyed. Other people - many employees of small businesses, for example - were not so fortunate.
At a church shelter in Houston, Paula Sanchez, 52, slowly cried as she said she was trying to locate her 24-year-old daughter. Ms. Sanchez, an immigrant from the Dominican Republic who worked as a pipe insulator at Avondale Shipyard in New Orleans, also wondered whether she could start over in Texas. "I hear there is industry here," she said. "I hope there's something here for me. I'm ready to do almost anything."
The recovery in New Orleans is likely to take longer than it will in southern Mississippi, where there is much less flooding. About 600,000 of the region's 1 million workers are in New Orleans, according to Economy.com, a research company.
Outside the immediate area, the biggest economic problems have come along the Mississippi River corridor. The Port of New Orleans is the nation's fifth busiest, and its closure has left barges in the Midwest with nowhere to go.
River/Gulf Grain, a shipping company in Davenport, Iowa, sent only one barge of corn and soybeans down the Mississippi last week and planned to send none next week, compared with the four or five it usually sends this time of year, said Erol R. Melik, the company's president. With no way to get the corn and beans on their way to Asia, the company would not hire the extra four workers that it did last year during harvest season.
"We're just taxing our infrastructure in a way we could never envision," Mr. Melik said. "It's going to be a quagmire for a long time."
Manufacturers have been calling ports from Houston to Philadelphia to ask about their ability to accept steel, rubber and other goods that usually go to New Orleans. On Thursday in Houston, stevedores finished unloading 3,000 tons of rubber and timber from the Indotrans Flores, a freighter diverted from New Orleans and Pascagoula, Miss., after the shipping lanes there had closed.
"There are alternatives," Donald C. McCrory, executive director of Port of Memphis, said.
Still, the other ports will not be able to handle all of the New Orleans traffic easily, and many companies expect weeks of bottlenecks. The potential that those bottlenecks might worsen is one of the new risks facing the economy.
No matter how the hurricane had affected them, people outside the disaster zone said financial issues were not their biggest concern.
"We're not feeling sorry for ourselves," said Mr. Melik of River/Gulf Grain. The human tragedy of the storm was far bigger than any economic problems, he said.
David Leonhardt reported from New York for this story, and Edmund L. Andrews from Washington. Motoko Rich, Charles V. Bagli and Louis Uchitelle contributed reporting from New York, Micheline Maynard from Toledo, Ohio, Simon Romero from Houston, Susan Moran from Boulder, Colo., Danny Hakim from Buffalo, and Laurie J. Flynn from San Francisco. |
