Katrina's Impact

Sept. 6, 2005
A week after the hurricane, there's no bottom line. But oil refining, chemicals, glass, coal and steel will likely figure in the calculation.

Like the loss of human life, the toll on the U.S. economy and on manufacturing is still being counted more than a week after Hurricane Katrina roared across the waters of the Gulf of Mexico and into the Gulf Coast of the United States.

Some early economic assessments are decidedly optimistic. "While the full impact of Hurricane Katrina will take some time to sort out, we believe the U.S. economy has the foundation to weather the storm," judges Martin Regalia, chief economist of the U.S. Chamber of Commerce, Washington, D.C. "While the near-term negative regional economic impact in the wake of Hurricane Katrina could be quite noticeable in upcoming monthly national economic data, substitution to alternative vendors and rebuilding some of the damaged structures should increasingly counter the initial negative national economic effects," says UBS Securities LLC, New York. Indeed, for now UBS is not reducing its inflation-adjusted GDP projection for 2006 from about 3%.

How Companies Are Helping

  • Chevron -- Donated $3 million to Red Cross. Will donate $2 million to charities and relief efforts near Chevron businesses in affected states.
  • Honda -- American Honda pledged $5 million to the Red Cross. Also making available portable generators, water pumps and vehicles to agencies working in affected areas.
  • Anheuser-Busch -- Is supplying 2.5 million cans of drinking water per week to victims. Also has donated $1 million to the Red Cross. Additionally it will match $1 million in funds from its independent distributors.
  • See what other companies are contributing
  • Clearly more cautious, however, is Thomas J. Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research group. "We don't know the extent of the long-term damage to energy production and refining. And we don't know the extent of the damage to the transportation system. [And] both of those are pretty important economy-wide," emphasizes Duesterberg. He figures "at least 5% of [oil] refining capacity is offline for at least a month -- and maybe more." Meanwhile, a spike in natural gas prices is doing a cost number on the production of fertilizer and plastics, which use natural gas for feedstock, and on the production of glass, which uses gas as a heat source, notes Duesterberg.

    At the same time, the hurricane at least temporarily disrupted transport on the Mississippi River and in and out of the Gulf -- and barges that carry bulk commodities are missing. "All of this is potentially a problem for manufacturing. Coal is one thing. [And] moving bulk commodities like steel or raw materials could be impacted," adds Duesterberg.

    But even as damages are still be assessed, some production capacity is returning is returning along the Gulf Coast. For example, DuPont & Co.'s Burnside, La., and Mobile, Ala., plants, two of five company sites affected by the hurricane, are now back in operation. ExxonMobil Corp. expected to be moving the maximum amount of crude oil through its Baton Rouge, La., refinery by day's end on September 4 -- and to have the refinery's gasoline production rates at maximum as well.

    Changes In Events

    See what New Orleans scheduled conferences have been altered.
    Although the amount of rebuilding -- of homes, commercial buildings and factories--that will take place in the Gulf region, particularly in Louisiana and Mississippi, is yet to be determined, the spending could be significant. "It seems plausible to us that such extra construction could total as much as 0.4% to 0.5% of the around-$13 trillion U.S. nominal GDP -- a key potential counter to possibly higher than expected energy costs in 2006," figures UBS.

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