Washington – Consumer spending plunged in August at the steepest rate since the September 2001 terrorist attacks as Hurricane Katrina slashed Americans’ incomes, fanned inflation and caused $170 billion in losses from property damage, the government reported Friday in its first tally of the storm’s economic effects.
The report came a day after the Labor Department said 279,000 Americans have filed new claims for unemployment insurance benefits because of Katrina, which slammed into the Gulf Coast on Aug. 29, wrecking homes and businesses, driving up energy prices and forcing a mass evacuation.
With energy prices still high, savings low, interest rates rising and consumer confidence plunging, analysts are widely forecasting U.S. economic growth to slow through the end of the year, as households and businesses trim their non-energy spending.
“It’s clear that the economic impacts from the hurricanes will stretch well beyond the Gulf Coast region to all corners of the nation and beyond,” said Scott Anderson, senior economist with Wells Fargo Economics.
Katrina pushed gasoline, natural gas and heating oil prices higher at a time when many shoppers may be tapped out after pushing home and auto sales to record levels during the summer.
Americans spent more than their after-tax incomes in June, July and August, the Commerce Department reported, showing that personal saving was negative for three months in a row – the first time that has happened since the department started collecting the data in 1959.
Consumers were able to spend more than their take- home pay all summer by dipping into savings, taking on more debt or by selling assets that have grown in value, particularly rapidly appreciating homes.
Federal Reserve Chairman Alan Greenspan, in a research paper released Tuesday, estimated that consumers gained an extra $600 billion in cash to spend last year by selling or refinancing their homes, or through home-equity loans – equivalent to 7 percent of after-tax personal income.
