Hurricanes Rita & Katrina Are Wreaking Havoc With The Economy
Thursday, September 22, 2005PAUL KANGAS: Hurricane Rita is barreling through the Gulf of Mexico tonight, and people along the Texas coast are getting out of her way. This afternoon the storm was downgraded to a category four, still very dangerous and still liable to cause huge economic repercussions after she makes landfall. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Even as residents flee the Texas coast ahead of hurricane Rita, the economic impact of hurricane Katrina is still being tallied. While repairs are under way in New Orleans, the Labor Department said today that 214,000 people have now filed unemployment claims because they lost their jobs in Katrina`s aftermath. On the future`s markets, the price of gasoline and heating oil rose today as traders anticipated more refinery damage due to hurricane Rita. The nation`s largest concentration of refineries is along the Texas coast and oil companies have been shutting down operations across the region. Four refineries are still out of service in Louisiana. Analysts say higher energy prices resulting from supply disruptions will cut growth in the near term but they expect a balancing boost to growth next year.
BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: We can expect to spend more on energy, less on everything else. But at the same time, government is coming in with a windfall, if you like, of fiscal stimulus to the effected area. And my guess would be there`ll be some going to Texas if Rita is very damaging and as a result we wind up seeing GDP growth surge in the first half of 2006.
GURVEY: The Conference Board`s index of leading economic indicators showed a decline last month, and it was measured before hurricane Katrina. The drop was due to a decline in consumer sentiment. Economists say consumers` buying decisions in the months ahead are likely to be most influenced by the inflation effects of the hurricanes.
ANIRVAN BANERJI, DIRECTOR OF RESEARCH, ECONOMIC CYCLE RESEARCH INSTITUTE: Consumers tend to build up precautionary savings because they don`t know what`s going to hit them in terms of prices and even more so when we are talking about food and energy inflation, because people don`t have a choice about spending money on food and energy. When that happens, consumer spending growth takes a hit and that is what we do expect in the aftermath of these two hurricanes.
GURVEY: The New York Mercantile Exchange will hold a rare Sunday daytime electronic trading session after Rita makes landfall. The idea is to take a proactive approach to help manage risk. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
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09/22/05:Energy Secretary Samuel Bodman On The Hurricane Impact
SUSIE GHARIB: A strong warning today from the American Petroleum Institute. It said that hurricane Rita poses quote an unprecedented situation for the oil industry. When I talked with Energy Secretary Samuel Bodman a short while ago, I asked him how the administration is preparing the nation`s refineries for the menace of Rita.
SAMUEL BODMAN, ENERGY SECRETARY: First of all this is a massive storm and we are taking it very seriously. We are doing everything that we can do throughout the government but particularly here in the Energy Department. We have deployed people to the region, both to the FEMA offices as well as to the state emergency operation offices that are located there. These are very experienced people who have been through this just three weeks ago getting ready for the advent of Katrina. So I`m very comfortable with that. We`re working with other agencies within the government to get appropriate waivers. The EPA has already waved regulations on gasoline formulation for this region in advance of this storm. So I would say that we`re doing everything we can do. More importantly, frankly, the companies who own these assets are responding extraordinarily well. They are very comfortable, not that there`s not going to be damage, because they don`t know that, but that they have prepared for it very well.
GHARIB: Now exactly to that point, Secretary Bodman, we have seen a lot of the oil companies shutting down the refineries along the Texas coast. What can you do to minimize the impact of them being off line?
BODMAN: There is nothing that anyone can do over the next couple of days until we find out what the damage was that has been caused by this hurricane. In many cases the refineries have been closed because no one was quite sure where this hurricane was going to go. For example, the refineries in Corpus Christi which now seems to be outside the line of fire are now closed and all of the employees have evacuated. So all of these refineries are going to be closed for the next few days.
GHARIB: And we saw when that happened after Katrina that gasoline prices skyrocketed after that because refineries were damaged or shut down. What can we expect after Rita?
BODMAN: We can expect that first of all, that the companies themselves are going to respond very rapidly and responsibly which they did the last time in my view so that I think we`ll find that the response will be effective. We can`t forecast specific prices or volumes until we see what the damage is that`s caused by this hurricane.
GHARIB: You said today that the administration is prepared to release oil from the strategic petroleum reserve. Is there any trigger point of where crude prices reach or gasoline prices that you would begin a release program?
BODMAN: We will respond using the petroleum reserve for the purposes for which it was intended Susie and that would mean if there is an interruption in supply of crude oil, a number of the offshore platforms have been closed down in anticipation of this hurricane depending upon what their situation is and what the availability of crude oil is, we will certainly try to respond to whatever the demands are from the marketplace. It will be made available if required.
GHARIB: Now oil experts say that between these supply disruptions that we have been seeing and the high prices in crude and gasoline, whatever, that this is a new paradigm for energy prices unless there is a recession. And the prices are going to stay at these high levels. Do you agree with that?
BODMAN: Well, we have certainly for the first time, at least in my lifetime, seen a situation where the suppliers of crude oil have had difficulty keeping up with the demand. Now there will be a response to these higher prices. We have seen high prices before we had Katrina, before we had Rita. And the question will be, can the industry respond? I believe that it`s likely they will be able to do that, but it`s going to take time. This is not an industry that can turn on a dime. Some time is required.
GHARIB: We hear over and over again that Americans have got to start conserving energy, using less and less. Are you going to be -- do you have any plans for a conservation program for Americans?
BODMAN: We will certainly be advocating that and that something that falls in the province of the Energy Department and I will be taking the lead on that. The president has been advocating conservation and I will be on the road myself trying to deliver that message. It`s very important that our citizens respond appropriately to the situation that confronts all of us.
GHARIB: All right, sir, thank you so much, Secretary Bodman. We appreciate your time.
BODMAN: I`m happy to be here.
