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Macroeconomic and Budgetary Effects of Hurricane Katrina 1 (September 2005)

handle is hein.congrec/cbo0856 and id is 1 raw text is: September 6, 2005 Macroeconomic and Budgetary Effects of Hurricane Katrina Katrina could dampen real gross domestic product (GDP) growth in the second half of tle year by V2 to I percentage point and reduce employment through the end of this year by about 400,000. Most economic forecasters had expected 3 percent to 4 percent growth during the second half, and employment growth of 150,000 to 200,000 per month. Economic growth and employment arc likely to rebound during the first half of 2006 as rebuilding accelerates. The Congress has appropriated $10.5 billion for spending on emergency relief, and many analysts expect more to be provided in the near future. Katrina will affect the budget in a number of ways in addition to the emergency spending-outlays may be affected by disruptions in the submission or processing of claims for federal payments, reductions in royalty payments from oil and gas drilling, and the sale of oil from the Strategic Petroleum Reserve; and tax receipts will be affected by inunediate reductions in national income and gasoline consumption, along with temporary tax relief provided by the Internal Revenue Service-but it is still too soon to estimate what the net effects on the budget might be. Macroeconomic Effects Katrina's macroeconomic effects will be greater than those of previous major hurricanes such as Andrew and Hugo, which caused a great deal of devastation but which had a small effect on the macroeconomy. Katrina's effects will be greater because of the greater devastation, the long-term flooding of New Orleans (which will preclude immediate rebuilding), and the destruction of energy and port infrastructure. Energv Sunnlv The supply of petroleum products and natural gas will be lower than it otherwise would have been, but the reduction in supply will not necessarily hurt economic activity nationwide significantly. If most of the refineries come back online during the next two weeks and there are no significant periods of total unavailability of product--that is, if rationing is done through the price mechanism alone-energy use will tend to be put to its highest-value uses, and economic activity will not be seriously affected. Spot prices for energy products have begun to fall from last week's highs.

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