Editor's note: While the figures mentioned in this article were correct at the time of publication, the insurance estimate has since been revised into a range of about $15 to $25 billion -- still one of the costliest events of all time. The forecasts used in this series are subject to change.
For all the attention that the energy aspect of Hurricane Katrina's devastation is getting, there will be far-reaching consequences across the entire economy. While the region will someday recover and return to normalcy, it won't happen quickly.
In the meantime, investors need to realistically brace themselves for potential macroeconomic consequences. The country's GDP is going to take a hit, and employment figures could look screwy for some time. A bit later on, once the rebuilding begins, I wouldn't be too surprised to see a bit of inflation pop up, since there will be considerable demand for all manner of rebuilding- or construction-related supplies and services.
Banking and insurance
Nobody yet knows what the final bill from this disaster will be, but insurers are already preparing for the worst. Although some have optimistically tagged the final price at around $25 billion, the more likely figure would probably be north of $40 billion. That figure simply covers the level of insured losses; uninsured losses may well be three times that amount.
Speaking of reinsurers, this is where I think we're likely to see the biggest hit. Reinsurance is essentially the business of providing insurance to insurance companies -- accepting the possibility of major catastrophe-related losses in bad years while collecting premiums during the good years. Companies in this line of insurance include BerkshireHathaway, Arch Capital, RenaissanceRe
Banks, too, are going to see hard times. For uninsured people whose homes were destroyed, banks will have little choice but to write off the mortgages as bad debt. Although banks can often recoup a reasonable percentage of a mortgage through a foreclosure auction, I don't think that approach will help much here. Federal assistance (including loan guarantees) will help the rebuilding process, but banks with extensive operations in the affected areas could be in for some rough quarters. That could include the likes of AmSouth
Building and construction
Eventually, thoughts will turn from immediate survival and relief to cleanup and rebuilding. Tens of thousands of homes -- perhaps hundreds of thousands -- will have been either destroyed by the storm or rendered unlivable and irreparable. That's not even counting places of business and infrastructure necessities like schools, hospitals, and the like.
As major large-scale builders, companies like Shaw
When the cleanup and rebuilding efforts get under way, there will likely be considerable demand for all manner of building supplies. Whether it's lumber from the likes of Universal Forest Products
The Port of New Orleans
Investors across the country who never gave much thought to New Orleans might be surprised to realize how much cargo was shipped in and out of the Port of New Orleans. A major thoroughfare for coffee, lumber, cotton, food, and rubber, the port was important not only for its docks and cargo-handling capabilities, but also for its storage facilities.
It would appear that as much as one-fourth of the country's coffee inventory was sitting in warehouses in New Orleans prior to the hurricane. Coffee doesn't exactly keep well in standing waters teeming with bacterial, viral, and chemical toxins, so it's likely that a fair chunk of the nation's java supply could be lost. What's more, Procter & Gamble produces about 50% of its Folgers coffee in New Orleans, and Sara Lee has significant operations in that area as well. While other ports like New York and Miami can fill in for New Orleans, it will still take time before things get even close to normal.
Agriculture will also be impacted, especially as we are approaching the harvest season for corn and soybeans -- two of the United States' major export crops. While there's still time to repair facilities before grain shipments would begin in earnest, the initial reports aren't great. Because of damage to facilities in Mississippi, Chiquita Brands has already had to reroute banana shipments to other facilities in Texas and Florida.
Though I'd imagine that many people across the country never gave much thought to the region hit by Hurricane Katrina, apart from the fleeting desire to see Mardi Gras once before they die, that has all changed now. Every American will see the storm's impact in fuel prices, food prices, and in the general state of the economy. While this might crimp disposable income a bit, that's nothing compared to what survivors in Louisiana, Mississippi, and Alabama will have to face.
On a more positive note, the U.S. has weathered major disasters before, and this will be no exception. Luckily, we have more than ample resources of our own, as well as those pouring in from all over the world, with which to rebuild, and plenty of incentive to do so. While it's only prudent for Fools to carefully watch their investments in industries directly affected by the storm, I would caution anyone against taking an overly fatalistic viewpoint on the storm's ultimate long-term impact.
More Foolishness in the Wake of Katrina:
On this week's Motley Fool Radio Show, we're talking about the aftermath of Hurricane Katrina, and we want to hear from you. Do you have some wisdom to share? Maybe you've come up with a creative way to give? We want to know about it. And here's the catch -- we don't want to talk politics because, well, that's not our show. We do want to hear from you if you've gotten some non-political post-Hurricane Katrina insight on money, business, or life. The Fool Radio phones are always open at 866-NPR-FOOL. That's 866-677-3665.