Transcripts

Hurricane Katrina Slows Down Economic Growth

SUSIE GHARIB: It looks like hurricane Katrina will pack a one-two punch for the economy, but it`s not going to be a knockdown. The Congressional Budget Office said today Katrina could reduce U.S. economic growth by up to a full percent in the short term and cost hundreds of thousands of jobs. Still, as Scott Gurvey reports in our ongoing series "Recovering from Katrina," the longer term outlook is brighter.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Katrina evacuees, survival has been the primary concerns but as they arrive at new locations, priorities quickly turn to jobs lost along with homes and possessions. The Congressional Budget Office today estimated that 400,000 jobs have disappeared in Katrina`s wake and the growth as measured by the gross domestic product will be reduced by as much as 1 percent. The CBO says most of the impact will come from the disruption of oil production. The Gulf coast is responsible for about a quarter of the nation`s oil. Still, the CBO says the economy will bounce back.

DOUGLAS HOLTZ-EAKIN, CBO DIRECTOR: I think this is an apocalypse for New Orleans. It`s not an apocalypse for the U.S. economy and it`s important to distinguish between those two. This is really about the people and the economy broadly defined will get through this.

GURVEY: Goldman Sachs today also lowered its growth forecast for the third and fourth quarters because of the storm, but the investment bank raised its 2006 forecast.

JAN HATZIUS, ECONOMIST, GOLDMAN SACHS: In the course of 2006, you will see some positives in terms of the GDP numbers, first because activity in the effected areas in Louisiana and Mississippi will slowly get back to normal. That adds to GDP growth which is a change measure. And secondly, you have to rebuild some of the damaged infrastructure.

GURVEY: Because of Katrina, Wall Street is now back to debating monetary policy. The Federal Reserve had been raising rates at what it calls a measured pace and the consensus believed it would continue, but Katrina has raised doubts and the consensus has disappeared.

KATHLEEN STEPHANSEN, ECONOMIST, CREDIT SUISSE FIRST BOSTON: If gasoline prices at the retail level are essentially following the wholesale level and we can anticipate then a decline from current levels, it`s very likely that the Fed continues to increase interest rates 25 basis point increase or by the same token, if gasoline prices continue to rise from current elevated levels, that of course is very onerous for the consumer and it might very well be then that the Fed skips this meeting.

GURVEY: Even if the Fed does skip a rate hike when it meets next on September 20, most believe it will resume in the months that follow. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.