A Congressional Budget Office assessment of the first government estimate of Katrina’s economic impact obtained by AP News looks bleak, very bleak. “Hurricane Katrina will reduce employment by 400,000 people in coming months while trimming economic growth by as much as a full percentage point in the second half of this year.”
In the first government estimate of Katrina’s economic impact, the CBO gave a “ballmark estimate” that gas prices would spike by an average of 40 percent this month. That development alone would reduce overall economic growth by 0.4 percent in the current July-September quarter and by 0.9 percent in the fourth quarter of this year.
For all of 2005, CBO had been predicting that the economy, as measured by the gross domestic product, would grow by 3.7 percent this year and 3.4 percent in 2006. Holtz-Eakin said the impact of Katrina on these year-over-year estimates was likely to be smaller than the effects on growth in the third and fourth quarters of this year.
The CBO report said that the economy of Louisiana was about 1.2 percent of the U.S. economy and Mississippi was about 0.7 percent of the national economy. If half of that output were lost for three months — September through November — then it would lower total GDP for the country at an annualized rate of about 1.3 percentage points in the third quarter and 2.7 percentage points in the final three months of the year.