Wall Street Sees Limited Storm Impact
Wall Street economists and money managers spent the long holiday weekend keeping close watch on the effects of Hurricane Katrina, with many saying that, despite the devastation, the long-term impact on U.S. and global economic growth should be muted.</br></br>But several analysts also warned that global stock, bond, currency and commodities markets may react sharply in the coming days and weeks to any signs of prolonged energy supply disruption, depressed consumer spending or rapidly rising unemployment.</br></br>"The economic and market implications of Katrina, and her ugly aftermath, remain highly problematic," Robert J. Barbera, chief economist at ITG-Hoenig, wrote in a report to clients over the weekend. "Most obviously, a slower trajectory for global growth now seems unavoidable. . . . U.S. consumer spending will take a hit in the months ahead."</br></br>Several Wall Street firms reduced their predictions for U.S. economic growth in the second half of the year, citing the impact of gas prices on consumer spending and the disruption of commodity shipments through the critical ports at the mouth of the Mississippi. Credit Suisse First Boston, for instance, reduced its estimated gross domestic product growth for the third quarter from 3.7 percent to 3 percent.</br></br>William C. Dudley, chief U.S. economist at Goldman Sachs & Co., wrote in a research note that the reduction in economic output should be limited to the next few months. But he said such an outcome was not guaranteed. "The worst-case scenario is if the drop in consumer spending leads to significant [enough] job losses to push the unemployment rate materially higher. That could be sufficient to generate the type of dynamics that culminate in recession."