The long-term economic impact of Hurricane Katrina will hinge in large part on how U.S. consumers react to the disaster and resulting surge in gas prices. Will they fall into the camp represented by Lisa Kays of the District or Heather Rories of Burke?
Kays, who works in international development, said the hurricane has forced big changes in her spending plans.
"It reinforced to me the need to save, to have cash," Kays said while sitting in a sandwich shop near Dupont Circle. "We've been thinking about buying a car, but after this, I'm like, no, it's not worth it."
Likewise, one of Kays's lunch companions said she and her boyfriend had planned to drive to New York over the weekend but settled on a day trip to Annapolis instead.
But a little farther down Connecticut Avenue, Rories, a librarian for a downtown law firm, said rising gas prices have had no impact on her spending or travel plans. She and her family drove to Charlotte over the holiday weekend, she said, and "every time we stopped, the gas prices had gone up."
"I just felt fortunate we could afford it," Rories said.
Consumer spending on food, clothing, services and big-ticket items accounts for about 70 percent of U.S. economic output. So much is riding on the extent to which Americans change their spending in response to high gas prices.
The surge in gasoline prices in the week ending on Labor Day was virtually unprecedented -- the retail price rose 45 cents, to a nationwide average of about $3.057 a gallon (with prices in the Washington area about 20 cents above that). In inflation-adjusted terms, that's the highest since 1981.
"Of course, we don't know whether the price is going to stay at $3," said Nigel Gault, U.S. economist at Global Insight Inc., a forecasting and research firm. "But the longer prices stay at this level, the harder it is to believe that consumers will just carry on doing what they were doing."
Even before Katrina laid waste to the central Gulf Coast, gas prices were dampening consumption, according to a survey in early May for the National Retail Federation. People with low incomes are those most likely to economize when gas prices rise. That is one reason Wal-Mart Stores Inc. reduced its earnings forecast for the third quarter.
Americans are hardly about to abandon their free-spending ways. Craig Johnson, president of Customer Growth Partners, a retail consultancy in New York, issued a study yesterday showing that after disasters, U.S. consumers tend to be "resilient."
Citing evidence from Hurricane Andrew in 1992; the Northridge, Calif., earthquake in 1994; the Sept. 11, 2001, terrorist attacks; and the four hurricanes in Florida last year, Johnson said, "Although the months of the event may briefly stun retail momentum, consumer spending tends to snap back sharply." On average, the firm's data show, retail spending (excluding autos and food service) was nearly 6 percent higher than the year before by the first Christmas after the event.
Katrina, however, knocked out a substantial portion of the nation's petroleum infrastructure, especially refineries that produce gasoline, when gas supplies were already stretched thin. "The larger worry may not be Katrina itself," Johnson said, "but if energy prices were to continue their sharp climb."
Since the price of gas has risen about 70 cents a gallon since early August, keeping it at that level for a year would mean motorists would have to pour an additional $84 billion into gas pumps -- equal to almost 1 percent of their incomes. "So it's not trivial," Gault of Global Insight said.
What people choose to pass up will also affect the severity of the economic impact. Larry Osborne of Forestville said that it costs him $70 to fill up his Cadillac Deville, up from about $35 not long ago, and that as a result he is eating out less. "It's impacted food and entertainment, mostly," he said.
Some economists say that continued strong sales of luxury goods will help offset cutbacks consumers are making on other retail products. But they wonder how long those pockets of strength can hold out as the storm's effects widen.
The storm's impact will come in phases, said Michael P. Niemira, chief economist for the International Council of Shopping Centers. "We haven't really seen the impact from the home heating oil and natural gas use that will kick in in the wintertime."