One On One With John Castellani, President of the Business Roundtable
Thursday, September 22, 2005SUSIE GHARIB: While the nation braces for hurricane Rita, the CEOs of America`s biggest companies say in a new survey that hurricane Katrina will hurt their operations and the repercussions could last a year. The survey was done by the Business Roundtable and when I spoke with the group`s president, John Castellani, I asked him to explain the negative impact of Katrina on American business.
JOHN CASTELLANI, PRESIDENT, BUSINESS ROUNDTABLE: Put this into perspective. We had done the CEO economic outlook just before Katrina, so we came back and did it this week, last week and this week so that we could gauge the effect. And what we saw overall is where we thought the economy was going to grow at about 3.5 percent GDP growth rate for the next six months. It`s come down slightly. It`s come down to 3.3 percent is the outlook and that has been driven primarily by changes in capital expenditure plans for the next six months.
GHARIB: You`re going to have to go back to your membership and do another survey given what`s going on with hurricane Rita. If you were to go back and talk to them, what do you think that they would say of how much hurricane Rita is going to weigh down on their operations?
CASTELLANI: Well, we know this historically and both Katrina and Rita are similar to what has happened in some other very devastating hurricanes and natural disasters in the past. We know in addition to the very devastating effect for the people, the homes and the businesses in the area where it hits, that overall the economy will take a hit for about the first three months. Then we see actually a rebuild and an uptick in the economy as people replace the homes that were lost, as they buy cars that were lost, as they replace durable goods and their household goods and then that probably will last about three to six months, maybe even a year and then long term the effect does have a -- it is dampening because after all wealth has been lost. People have lost some of their possessions and some of their own personal wealth. We would expect the same thing for Rita.
GHARIB: Now looking at the survey results a little more closely, the outlook for spending, capital spending and sales expectations were down sharply so what do you think are the implications of that for economic growth?
CASTELLANI: Well, we still think that the economy was strong before Katrina. It`s strong still overall before Rita hits, so it`s able to withstand the kind of effects, the national kind of effects that these hurricanes have on the economy. Cap ex, capital expenditures were down the most in the categories we looked at. They dropped by 14 percentage points. But the good news is we didn`t see a contraction of capital expenditure plans. What we saw were those 14 points go to the category of it`s going to stay the same as it has been in the last six months rather than increasing. I think the real problem is going to be watching natural gas prices, particularly. That`s what we`re watching.
GHARIB: And what did the CEOs say about energy prices?
CASTELLANI: Well, if you - if we looked at what were the sources of the negative impacts on businesses, energy prices, 29 percent of our CEOs said it was energy costs, 27 percent said it was physical damage to the infrastructure that was affected in the hurricane area. Energy costs are something that we`re going to have to watch very carefully particularly natural gas costs. When we`re looking at natural gas more than 13, almost $14 a million cubic feet as a feed stock, as an industrial fuel, as a process fuel, as well as a heating -- source of heating fuel for many, many homes in the country, it`s going to, if it stays at a high level, it`s going to have a dampening effect.
GHARIB: Real quickly because we`re running out of time, what is the Business Roundtable`s reaction to the hike by the Federal Reserve this week? Do they support that in view of this feedback?
CASTELLANI: I think everyone expected it. A quarter of a point keeps it on target. I think the Fed`s view of the economy was remarkably similar to the Business Roundtable CEO`s view of the economy and that is underlying, the underlying economic signs were strong. They continue to be strong and we should be able to maintain the effects.
GHARIB: All right. We`ll have leave it there. Mr. Castellani, thank you very much.
CASTELLANI: You`re welcome.
