Will Hurricane Katrina Affect the Market?

Physician's Money Digest, October 2005, Volume 12, Issue 14

Although the horribleimages of death anddestruction are slowlyfading from our TVscreens, the financialimpact of Hurricane Katrina will likelyendure for the foreseeable future.Katrina's damage reaches far beyondany disaster before it—never before inthe United States has a natural disasteraffected so many citizens. While yourhome may not have been in Katrina'spath, the hurricane could still have anadverse effect on your wallet.

Energy Emergency

Wall Street Journal

The economic area hardest hit byKatrina is the production of oil andnatural gas. Refineries along the Gulfof Mexico were damaged by the hurricane,leading to skyrocketing prices atgas pumps across the country. Accordingto the , theGulf accounts for 10% of the refiningcapacity in America, making it a verycrucial spot to take a hit. Katrina cameat a time when the economy was somewhatpositive, despite the surge in oilprices. If the energy supply is drasticallyreduced and oil prices reach $100per barrel, the economy will be perilouslyclose to recession by the end ofthe year. The high cost of a gallon ofgasoline, upwards of $3.50 for thenationwide average, would severelyimpact the finances of most Americans.

The

Outlook

Conversely, Standard & Poor's states that they see the S&P500 climbing higher by the end of theyear despite the energy predicament.They note that consumers surveyedbefore the hurricane were relativelyhappy with the state of the economyeven though energy prices were alreadyhigh, so the stock market shouldnot be severely affected. Beth AnnBovino, Standard & Poor's economist,calculates that gross domestic productgrowth will decrease by half a percentagepoint this quarter, but will reboundas rebuilding efforts begin.

Consumer Crisis

New

York Times

Wall Street Journal

In addition to the dent in the energyindustry, the shipping trade hastaken a hit as well, since many importantports were shut down and cargowas lost in Katrina's wake. The reports that immediatelyfollowing Katrina's devastation approximately300 barges fully loadedwith consumer goods were left strandedand floating aimlessly on riversnorth of New Orleans with no ports inwhich to dock. The New Orleans areaports handle roughly half of the cropsexported from America, and, accordingto the , cargoneeds to be diverted to other ports asthe damaged Gulf ports are beginningto reopen, a process that may takemonths. If the port recovery is extensive,importers may buy from otherports on the West Coast, causing expensivelogistical complications.

The flow of goods up and down theMississippi River could be stifled for aprolonged period of time, driving upprices for consumers for a variety ofitems. The closure of grain-exportingports in the New Orleans area hascaused a sharp downturn in prices thatMidwest farmers command for corn,wheat, and soybeans, which will raisethe cost of several food items reliant onthose crops. Not only have crop pricesbeen affected, but goods such as oysters,chicken, sugar, coffee, bananas,paint, and tires should see a steepclimb in costs as their docks, plants,and refineries recover. These pricescould remain high for quite some time,comparable to surging gasoline prices,and leave Americans feeling thepinch.