Hurricanes’ impact on economy less than anticipated: CBO
The agency’s director, Douglas Holtz-Eakin, said in a letter to congressional leaders that hurricanes Katrina and Rita may have “more modest” economic consequences than the CBO had anticipated.
The CBO estimated that their overall impact on the economy will be about one-half of a percentage point for the second half of the year, compared with as much as a percentage point as seen in a Sept. 6 analysis.
“Hurricanes Katrina and Rita have temporarily reduced the growth of economic output, but the effects that rebuilding will have on economic activity may more than offset the drag by early next year,” the CBO said.
When considering private and government support for recovery and rebuilding, the storms will not affect growth in the gross domestic product over the final three months of 2005, Holtz-Eakin said.
In fact, economic growth “could even be somewhat higher than was projected before the hurricanes,” said Holtz-Eakin, head of the nonpartisan agency that provides economic and budget data to Congress.
Most of the economic losses — as much as 1.5 percentage points — would come in the July through September period.
Before the hurricane struck, the CBO said the economy would grow at an annual rate of between 3 percent and 4 percent in the second half of the year. Employment was forecast to grow by 150,000 to 200,000 workers per month.
The CBO estimates that between 280,000 and 400,000 people lost jobs as a result of Katrina; the impact of Rita is expected to be much smaller.
“By early next year, the pace of reconstruction will probably cause the net effect of the hurricanes on jobs nationwide to be minimal,” according to the CBO report.
The Sept. 6 report had given only a “ballpark estimate.”
It is too early to predict Katrina’s impact on the federal budget. But the CBO predicts the $62 billion appropriated so far for hurricane relief will add about $30 billion to the deficit for the budget year that begins Saturday.
Last month, the CBO put the 2006 deficit at $298 billion.
An additional $3 billion to $4 billion from federal flood insurance claims will further increase that deficit, CBO said.
“The disasters also will have a significant impact on the federal budget,” Holtz-Eakin said.
On inflation, the CBO predicted a greater impact than previously seen, almost entirely due to higher energy and gasoline prices.
The consumer price index may be almost 1 percentage point higher for the period between the fourth quarter of 2004 and the fourth quarter of this year than previously expected because of the hurricanes
“But consumer price inflation should revert to pre-Katrina rates in the first half of 2006 if, as is generally expected, energy prices ease part of the way back to their pre- Katrina levels,” CBO said.
The CBO said the most recent estimates are uncertain because of incomplete information about the hurricane damage.
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