Katrina's Economic Impact: One Year Later

Without jobs and with uninhabitable homes, many homeowners stopped paying their mortgages, and their loans quickly became delinquent.

"The impacts of Hurricane Katrina on Louisiana and Mississippi caused the U.S. mortgage delinquency rate to rise significantly in the third quarter of last year," wrote Doug Duncan, chief economist at the Mortgage Bankers Association. "The two states already had the highest delinquency rates in the nation prior to the storm."

While many mortgage providers delayed collecting overdue payments, Duncan expected that many of the homes have been abandoned, and banks and mortgage providers will start to foreclose on homes this year.

Energy Crunch

Hurricane Katrina was particularly damaging to the nation's oil and natural gas industry, which is based mainly in the Gulf of Mexico. At the time the storm hit, the Gulf of Mexico represented approximately 29 percent of all domestic oil production and 47 percent of the nation's 17 million barrels a day refining capacity.

On Aug. 30 of last year, the day after the storm made landfall, 95 percent of oil production in the Gulf ceased. Oil companies hurried to restaff the platforms they had evacuated before the storm and make any needed repairs. But 10 months later, yearly oil production was still 30 percent less than pre-Katrina levels.

"The hurricane had a short-term effect on the general U.S. economy only because of a temporary reduction of the supply of oil, natural gas and gasoline," explained William Niskanen, chairman of the CATO Institute.

The storm also shut down refineries throughout the region. Seven of the nine facilities that can refine up to 1.5 million barrels of crude oil a day were up and running by November 2005. Two refineries, however, took longer to restart.

ConocoPhillips' refinery in Belle Chasse, La., which produces 247,000 barrels a day, returned to normal operations only in April of this year. Murphy Oil's Meraux, La., refinery started up with 80 percent of its refining capacity in May.

The short-term shutdown in refining capacity led to shortages of gasoline throughout the nation and spikes in gas prices at the pump. On Sept. 5, 2005, the average U.S. price for a gallon of gasoline set a new record at $3.07, according to the Energy Department.

"The spike in energy prices due to the loss of refining capacity pulled money out of consumers pockets and slowed the economy slightly in the fourth quarter," said Dean Baker, economist and co-director at the Center for Economic and Policy Research. "These immediate effects had largely dissipated by the end of the year. If anything, the rebuilding from the storm (financed by insurance and government assistance) was giving a modest boost to the economy by the beginning of 2006."

Economy Suffers, Then Rebounds

The combination of higher prices at the pump, along with the loss of thousands of jobs, hurt the overall economy at the end of last year. Gross domestic product, or GDP, the measure of all goods and services produced in the country, dropped to 1.8 percent for the last three months of 2005 compared with a growth rate of 4.2 percent from the previous three months.

Mesirow Financial chief economist Diane Swonk wrote: "Katrina had real distortionary effects on the economy, shaving growth from the fourth quarter as both disruptions to business and the drag of higher energy costs played out, and then boosting growth in the first quarter as reconstruction got underway."

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