Interesting piece in today's Washington Post highlighting just how interdependent markets in the U.S. really are and the havoc a disaster of Katrina's size can wreak.
Here's some of the ripple effects that can be expected from Katrina:
- Higher gas prices (duh)
- Higher natural gas and jet fuel prices, meaning higher airline travel prices, but...
"Cutthroat competition from new, low-cost airlines continues to prevent carriers from passing all those costs onto consumers. Now, airlines on the brink of bankruptcy, such as Northwest and Delta, could topple, with broad ramifications. Airlines and attendant businesses such as car rental companies employ 10 million, and account for 8 percent of the U.S economy..."
- Higher chemical prices, which trickle down to lots of everday stuff:
"More than half the chemical industry's capacity to make alpha olefins -- a key ingredient in shampoo -- is in Louisiana. Nearly half of the ethylene glycol -- used to make polyester -- comes from the region, said T. Kevin Swift, chief economist of the American Chemistry Council."
- Higher coffee prices: the port of New Orleans and it's warehouses are a significant point of entry for coffee imports.
- Higher oyster prices: 40% of oysters come from the Louisiana coastal waters.
"As for fish, retailers and wholesalers yesterday said consumers should probably cross oysters off their shopping list because the hurricane destroyed the oyster beds as well as the boats, docks, warehouses and processing plants that ship the bivalve."
- Higher prices of construction materials: This has the potential to be a long-term effect and could really cool the new home construction market.
- Lower farm level grain prices: With the port or New Orleans shut down, Midwest farmers can't export their grain crops. Might be good for U.S. consumers but bad for U.S. farmers.
- Higher transport costs on all goods.
What are the long term projections for the overall effect on the economy? I haven't seen any official forecasts from the government, but...
Relief may not be coming anytime soon. Ben S. Bernanke, chairman of President Bush's Council of Economic Advisers, warned consumers yesterday to expect to pay at least $3 for a gallon of gasoline for the next six to eight weeks.
With that in mind, Global Insight has lowered its economic growth forecast by 1 percentage point for the current quarter, to a still-respectable 3.5 percent. But the final three months of the year could see growth fall to 1.5 percent -- "weak," Behravesh said, "but not a recession."
Wow.
