- The Washington Times - Thursday, September 15, 2005

The economic shock delivered by Hurricane Katrina forced 68,000 Gulf Coast residents to seek jobless benefits last week, the most in nearly a decade, and prompted sharp pullbacks in industrial activity as far away as New York and Philadelphia.

Reports yesterday from the Labor Department and Federal Reserve underscored the deep effect of the devastating storm, which left hundreds of thousands of people homeless and unemployed and cut off energy flows from the Gulf of Mexico that are the lifeblood of the economy.

The jump in initial jobless claims from 327,000 to 398,000, fueled mainly by Katrina, is only the beginning, analysts say, with many thousands more expected to apply for benefits in the weeks ahead as jobs they once held have disappeared or been temporarily suspended.

“This was certainly a sobering report about the extent of disruption,” said Roger M. Kubarych, economist with HVB Group.

Fortunately, the initial impact from the storm was not “catastrophic,” causing as many as a half million new claims, he said, but neither was it negligible like previous hurricanes.

Aaron Smith, analyst with Economy.com, said jobless claims will continue to mount in the weeks ahead, and will be only partially offset by new jobs being created elsewhere in the Gulf region and around the country to rebuild wrecked infrastructure and homes.

“State workers have not been able to process the deluge of claims related to Katrina,” he said.

About 900,000 people are out of work because of the storm, he estimates, because of the forced evacuation of New Orleans and other areas along the coast.

Two-thirds of those may be only temporarily unemployed, he said, either because their businesses were temporarily closed by the evacuation and damage from the storm, or they cannot reach their jobs.

Another 300,000 people are truly unemployed, however, with no immediate job prospects, he said. The displacement of those individuals will cause an increase in the unemployment rate for Septemprospects, he said. The displacement of those individuals will cause an increase in the unemployment rate for September and contribute to an overall job loss of around 100,000 nationwide, he said.

Reports from the Fed’s New York and Philadelphia reserve banks showed the storm caused sharp decreases in manufacturing activity by cutting off transportation and communication networks and shutting down nearly all Gulf production of oil and natural gas for several days.

Manufacturers are heavily dependent on oil and natural gas to fuel operations, and industries on the East Coast that are fed by oil and gas pipelines funneling fuel from the Gulf are particularly vulnerable to shutdowns in the critical Gulf facilities.

While some facilities have been reopened, nearly half of oil and gas production remains shut, and four refineries producing about 5 percent of the fuel consumed in the United States are still off line and expected to remain so for months.

Yesterday, Royal Dutch Shell said its huge Mars deepwater oil platform — which alone produces about 15 percent of the oil reaped from the Gulf — likely will remain shut until mid-2006.

Manufacturers have been confronted not only with a lapse in supplies but — like everyone else — skyrocketing costs for what fuel is available. The Fed reports showed steep increases in their costs that will pinch profits and possibly spur price increases for consumers in the months ahead.

A Labor Department report yesterday showed that despite hefty rises in the cost of energy in the two months preceding Katrina, producers have not passed on much of their increased energy costs to consumers. But economists say that may change.

“Manufacturers have had a little more success in passing through higher input costs,” and will be tempted to do so after Katrina, said industrial analyst Daniel Jester.

Still, many economists are predicting that the setback for manufacturing and consumers alike will be transitory, and the economy will snap back as the nation recovers from the storm.

“Disaster recovery likely will lead to reacceleration of growth by early 2006,” said Thomas J. Duesterberg, president of the Manufacturers Alliance.


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