Unemployment down to 4.9% but what about Katrina?

According to the AP:

"The nation's unemployment rate dipped to a four-year low of 4.9 percent in August as companies added 169,000 jobs...."(http://biz.yahoo.com/ap/050902/economy.html?.v=13&printer=1)

Normally, we would treat this as very good news.

However, we must consider the negative impact of the New Orleans disaster.

What about Katrina?

According to Reuters:

"The U.S. economy can weather the aftermath of Hurricane Katrina because the Federal Reserve will not repeat the mistake of the 1970s of allowing an energy shock to fuel inflation expectations, a top Fed official said Friday.

"We are in a different environment now than we were in the 1970s. The way the economy responded (then) had to do with what people thought about inflation," Richmond Federal Reserve President Jeffrey Lacker told Reuters in an interview.

"They thought oil prices would pass through to inflation. They thought the Fed would let that happen.

"I don't think that is the case now and I think that is why there is reason to believe there will be less pass-through to inflation right now and the dislocation to the real economy will be substantially less," he said.

Disruption to U.S. oil refineries and pipelines from Hurricane Katrina has evoked memories of the 1970s fuel crisis, with drivers in some parts of the country waiting for hours to buy gasoline after shortages pushed prices 30 to 50 cents higher to above $3 a gallon. (http://today.reuters.com/PrinterFriendlyPopup.aspx?type=bondsNews&storyID=URI:urn:newsml:reuters.com:20050902:MTFH71522_2005-09-02_21-23-24_WAT003783:1)

Time will tell.

After 9-11, the US economy took a psychological hit coming on the heels of the 2000 recession. Today, Katrina is hitting an economy which is booming by any historical measurement.

What will the regional impact be? New Orleans is a very poor city. Can the city recover? Can the hotels and casinos open again?

The AP has a story on this today:

"It's just so devastating. You got to shore up the levees and get rid of the water before you can restore the necessities - electricity, water, sanitation, telecommunications. The engineering challenges faced will be gigantic," said Stuart Hoffman, chief economist at PNC Financial Services Group.

Rebuilding strategic oil facilities and ports will be a priority - eventually bringing people back to their jobs, Hoffman said.

But smaller Mom and Pop shops - and their workers - probably face a more precarious future.

Some small businesses, restaurants and hotels likely won't reopen.

Casinos built on barges along the coast that were damaged or destroyed probably will resume operations, though some uprooted casino workers may seek employment elsewhere, such as Las Vegas or Atlantic City.

"The populations in Louisiana and Mississippi are incredibly poor. Most of the damage was from flooding, which doesn't tend to be covered by insurance. That combination adds up to an incredibly long and painful rebuilding process- I think five to 10 years," said Mark Vitner, senior economist at Wachovia."(http://apnews.myway.com/article/20050903/D8CCH3K00.html)