U.S. Economy May Feel Katrina's Impact

Some economists warn that Hurricane Katrina will have economic impact far beyond the Gulf Coast region. David Wessel, deputy Washington bureau chief of The Wall Street Journal, says the inability to refine and distribute oil in hurricane-battered areas could negatively affect the economy nationally, including unemployment.

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RENEE MONTAGNE, host:

Some economists are warning that Hurricane Katrina will have economic impacts far beyond the Gulf Coast region. The hurricane has already caused disruptions to oil production that temporarily pushed the price of oil passed the $70 mark. Yesterday, the Bush administration announced it will release millions of barrels of oil from the nation's Strategic Petroleum Reserve. The question is: Will that be enough to keep the economy from falling into recession? We turn now to David Wessel, deputy Washington bureau chief of The Wall Street Journal who joins us in our studio.

Good morning.

Mr. DAVID WESSEL (The Wall Street Journal): Good morning

MONTAGNE: Is this hurricane the last straw for the economy?

Mr. WESSEL: Anybody who gives a firm yes or no to that question is lying. The right answer is it depends and what it mostly depends on is just how long all the energy production and refining capacity in the Gulf of Mexico is out of commission. If it's out for a long time, it really could slow the economy so much that unemployment rises or even threatens a recession. It's not only energy that goes through New Orleans, of course. It's a very important Mississippi port for grain and for imports and exports. And if the ports are closed for a while, that'll just make things even worse.

MONTAGNE: Other hurricanes, Andrew in 1992, for instance, they caused a lot of damage but it didn't have a big national impact. What makes Katrina different.

Mr. WESSEL: The question here is whether this one is so disruptive to the energy supplies of the nation at a time when they were already tight that it makes the difference between an economy that's been growing at better than 3 percent and one that slows so much that unemployment starts to rise. The answer to the question will that happen really depends on how long does it take to get these energy facilities, particularly the refineries in the Gulf, back in business, and it's going to be a while. The question is: Is it weeks and we have $70-a-barrel oil? Or is it months and we have $100-a-barrel oil?

MONTAGNE: David, let's take a step back. Oil prices have been soaring for months, but the economy has been perking along. How come?

Mr. WESSEL: That's a very good question. Basically, oil prices have been going up largely because demand is so strong. The economy was doing so well here and in China and elsewhere that it was pushing up the price of oil. And you don't get recessions because there's too much demand in the economy. This is now different. This is an interruption in the supply of energy. It has the same effect on the economy as if OPEC had turned the spigot and started producing less, and that can have much more serious economic effects.

MONTAGNE: So in a way, Katrina changes everything.

Mr. WESSEL: Katrina could change everything, yes.

MONTAGNE: What about the notion that Katrina will result in a reconstruction boom? It happens after these natural disasters. Could jobs actually be added in this case?

Mr. WESSEL: Well, there will be some jobs that wouldn't have otherwise been created, of course, all those reconstruction jobs and rescue workers and all that stuff. But, of course, there are a lot of jobs that will never return or have been lost for a long period of time. It's hard to balance those out. But the important thing to remember is the way we count the economy is sort of wacky. You lose a whole city and it never shows up in the government gross domestic product account. That's just a loss of wealth. And so you sometimes see more of the positive effects in the government indicators than you do see the downward effects. But this is not a net plus for the economy.

MONTAGNE: David, thanks very much.

Mr. WESSEL: You welcome.

MONTAGNE: David Wessel is deputy Washington bureau chief of The Wall Street Journal.

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