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Katrina, high energy costs hammer consumer spending

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 yesterday 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 yesterday 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.

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

On Wall Street, crude oil prices eased with a price of a barrel of light crude dropping 55 cents to $66.24 in New York trading.

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