Spikes and Shortages Go Far Beyond Gas

New York traders bid up coffee prices on news of flooding at a Louisiana Folgers plant. New Orleans warehouses a quarter of the U.S. coffee supply.
New York traders bid up coffee prices on news of flooding at a Louisiana Folgers plant. New Orleans warehouses a quarter of the U.S. coffee supply. (By Mary Altaffer -- Associated Press)
By Jonathan Weisman
Washington Post Staff Writer
Friday, September 2, 2005

From reeling airlines to shuttered chemical plants to oyster shortages, the sprawling economic impact of Katrina began coming into view yesterday, as several Wall Street economists lowered growth forecasts to a near crawl by year's end.

The pain will come mainly from soaring energy prices, not only for gasoline but also for natural gas, home heating oil and jet fuel. But costs are also rising on chemicals used to make products from tennis dresses to compact discs; on coffee, which relies on the crippled port of New Orleans and its vast coffee warehouses; and oysters, four in 10 of which come from the waters off Louisiana.

Kenneth D. Simonson, chief economist of the Associated General Contractors of America, warned of price spikes for asphalt, roofing materials, plastic pipe, insulation, metals and concrete. Midwestern farmers felt the sting of Katrina yesterday as grain prices fell on word that harvests cannot be sent by barge down the Mississippi River for export. And cattle futures declined for the third straight day on speculation that pinched family budgets will mean fewer steaks for dinner.

"There are varying degrees of pain, but I don't think there are going to be many sectors that are not going to be impacted," said John E. Silvia, chief economist of Wachovia Corp. "Every grain farmer, every truck driver, every commercial driver, every consumer in the Upper Midwest whose gas prices have just skyrocketed will be feeling Katrina."

To be sure, most of the pain will flow from one pressure point, fossil fuels, said Nariman Behravesh, chief economist at Global Insight Inc., a Massachusetts economic forecasting firm. Delivery firms such as DHL, United Parcel Service and Federal Express informed customers yesterday they would add surcharges of between 5 and 15 percent.

Record gasoline prices will squeeze family pocketbooks.

General Motors yesterday was already blaming Katrina in part for a 16 percent drop in sales in August.

Without significant relief, falling consumer spending will filter down to smaller items as well. At least one retailer, Macy's owner Federated Department Stores Inc., said the hurricane led to lackluster sales last month.

If the trend continues it "could mean a nasty Christmas" for retailers, Behravesh said.

Relief may not be coming anytime soon. Ben S. Bernanke, chairman of President Bush's Council of Economic Advisers, warned consumers yesterday to expect to pay at least $3 for a gallon of gasoline for the next six to eight weeks.

With that in mind, Global Insight has lowered its economic growth forecast by 1 percentage point for the current quarter, to a still-respectable 3.5 percent. But the final three months of the year could see growth fall to 1.5 percent -- "weak," Behravesh said, "but not a recession."

For the airline industry, the soaring cost of oil will have immediate consequences, warned James C. May, president of the Air Transport Association, the industry's trade lobby. The premium that refiners charge to turn oil into jet fuel has shot from $3 a barrel at the beginning of the year to $25, pushing the effective price of a barrel of oil to around $95 for the already ailing airlines.

CONTINUED     1        >

© 2005 The Washington Post Company