When Katrina hit the Gulf Coast there was the potential for massive damage to the energy extraction, refining and transmission infrastructure in the region as well as to the extensive port facilities along the Louisiana-Mississippi-Alabama coast.
The implications of this scenario were devastating to the economy of the affected region and quite serious to the U.S. economy as well. Some forecasters saw serious risk of a national recession, and many made deep cuts to their economic growth forecasts for the balance of this year and into 2006.
The degree of damage to the energy infrastructure and port facilities has turned out to be much less serious than the worst-case scenarios. As this message came through, energy prices receded to pre-Katrina levels and the interest rate structure gravitated back up to levels prevailing before the storm. While some key economic indicators (including payroll employment growth and industrial production) will take heavy hits in September, the impacts will be temporary, and quarterly growth in U.S. economic output will be well maintained. We’re showing average growth of real gross domestic product (GDP) at 3.4% in the second half of this year, only slightly below the first-half pace.