Massive Unemployment and Relief in the Wake of Katrina

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Forecasts by the Congressional Budget Office (CBO) are putting unemployment at 400,000 in the wake of Hurricane Katrina. The CBO released a report on the nation's worst natural disaster and its economic impact last week. Although Katrina caused a “significant but not overwhelming"
impact to our economy, recession is not expected as a result of the storm.

Estimates of pre-Katrina payroll job growth were set at between 600,000 and 800,000 and those numbers will be be reduced by the 400,000 in the final quarter of the year. The economies of Louisiana and Mississippi are currently 1.2 and 0.7 percent of the national economy respectively.

“Presumably some people in New Orleans and other parts of the coast will be able to return to work in one or two months, and construction employment will be picking up during the fourth quarter,” the CBO report stated. The report went on to state that the main areas expected to have “prolonged and substantial disruption of economic activity are the New Orleans-Metarie-Kenner metropolitan area of Louisiana and the two Gulfport-Biloxi and Pascagoula metropolitan areas of Mississippi.

“Last week, it appeared larger economic disruptions might occur, but despite continued uncertainty, progress in opening refineries and restarting pipelines now makes those larger impacts less likely,” CBO Director Douglas Holtz-Eakin wrote in a letter to Senate Majority leader Bill Frist and other congressional leadership.

Even with the sooner-than-unexpected resumption of energy supply production and delivery and the current sabliszation of fuel prices, gasoline prices are expected to rise by 40 percent in September, reducing economic growth by 0.4 percent in Q3 and 0.9 in Q4 for 2005 as presented in the CBO report. Crude oil prices are continuing to come down as production ramps back up in the Gulf States but energy prices are a large independent factor.

“Energy is the big wild card. We just don't know where prices will be. It will be a question of how fast oil refineries and oil pipelines comes back,” said David Wyss, chief economist at Standard and Poor's speaking with the Associated Press.

Effects of Ketrina on the budget are still uncertain but the Congress has already approved $10.5 billion in emergency spending with President Bush asking for approval of another $51.8 billion for federal recovery efforts. Private budget experts see next year's budget deficit rising by more than $100 billion with Katrina spending. If rebuilding takes longer than expected, the expected economic recovery may be delayed.

Currently, an estimated 10,000 workers have filed for disaster-related unemployment benefits. This number is based on a survey of claims offices in Alabama, Mississippi, Louisiana, and Texas where the state has agreed to accept relocated workers' benefit applications. This number might be higher except for the fact that many claims offices are still closed.

“We know that a flood of Katrina-related claims are coming. The magnitude and the timing are uncertain but the figures will be boosted sharply very soon,” stated Stephen Stanley, chief economist at RBS Greenwich Capital speaking with the Associated Press.

The Labor Department has given $30.8 million in grants to Alabama, Mississippi, Louisiana, and Texas to aid in the processing of unemployment claims and speed up benefit payments for those put out of work by Katrina. Labor Secretary Elaine Chao said to the Associated Press. Secretary Chao went on to say that these grants would help ”expedite unemployment insurance payments through mobile field units, hiring temporary staff, increasing Internet and telephone claims processing and rebuilding damaged facilities.”

Other states are such as Arizona and Pennsylvania are also reporting that jobs are available for Katrina evacuees via state-run centers and temp agencies. “We can line them up with an employer pretty readily,” said Gregg Carroll speaking with the Tucson Citizen. The marketing manager at Staffmark, a temporary employment agency, added, “There's certainly plenty of jobs here.”

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