Economy wobbly in Katrina's wake

WASHINGTON — Hurricane Katrina has knocked the economy for a loop, and whether it revives or slips into recession depends on whether nervous consumers are willing to spend more.

New figures on Friday showed the storm caused incomes to fall in August, reflecting $100 billion in losses by people who didn't have adequate insurance to cover damage to homes, businesses and vehicles.

The Commerce report showed that spending was on the skids even before Katrina struck. Soaring gasoline prices caused consumers to reduce spending by the largest amount since the September 2001 terrorist attacks.

The 1 percent drop, after adjusting for inflation, reflected not only the pain at the gas pump but a cutback in spending on new cars after two big sales months due to attractive incentives from automakers.

The impact of $3-per-gallon gasoline is taking a toll on consumer confidence. The University of Michigan reported Friday that its confidence survey for September fell to 76.9, the lowest level in 12 years. The August and September declines are the biggest back-to-back drops on record.

"High gas prices had a devastating impact on consumers' budgets and caused consumers to expect a worsening financial situation during the year ahead," said Richard Curtin, director of the Michigan survey.

Analysts said they still expect the economy to rebound from the hurricane and energy-related blows but cautioned that statistics over the next two months would look grim.

"We are starting to get early estimates of the impacts of Katrina and they are ugly," said Joel Naroff, chief economist at Naroff Economic Advisors.

The Commerce report on incomes and spending estimated that Katrina resulted in $100 billion in property loses not covered by insurance. The report estimated that $70 billion in insurance payments would be made.

Without the impact from the uninsured losses, the government estimated incomes would have risen by 0.2 percent in August. In the government's accounting method, both the losses and the payments were recorded on the day the hurricane hit.

Because Katrina came ashore on Aug. 29, the August income report did not reflect job losses from the storm. That negative hit to incomes will appear in the September report and also will be evident in the September unemployment report, scheduled to be released next Friday.