Rita's Winds: Ill Blow For Economy

Everyone expects gasoline and home-heating oil costs to rise in the wake of Hurricanes Katrina and Rita, but the year's busy storm season will have other effects on Americans' wallets, says The Early Show financial consultant Ray Martin.

The economy, which has been slowing throughout the year, is going to slow down by another 1 percent in the fourth quarter, Martin says. He expects the economy to pick up again in the spring as billions of dollars of federal aid are pumped into the economy for reconstruction in the Gulf region.

Because of the twin storms on the Gulf Coast and the declining growth in the U.S. economy, Martin says, Americans can expect bad news in the following areas:

Home Heating. Americans can expect to see increases of 50 percent to 100 percent in costs for this heating season. The sticker shock can be expected in early January when many homeowners fill their oil tanks after the Christmas season.

Construction Costs. Rebuilding in the Gulf Coast after Katrina is going to put a lot of pressure on lumber, concrete and steel. "It's going to cost you more to build a home," Martin says. "Your builder will tell you he's going to have to raise costs and pass his increases back to you."

Airline Travel. The cost of airline travel will rise and many unprofitable routes will be shut down. Martin says the storms couldn't have come at a worse time for the airline industry, which already is doing much belt-tightening to stay in business.

Interest Rates. Americans will see interest rates rise because the Federal Reserve Bank says it is very concerned about this economic stimulus that will continue to cause inflation.

In spite of all this, there are some steps consumers can take to rein in costs or boost earnings, Martin says. You may not be able to lower your heating costs, but you can make money in the markets to make up for it, he points out. He had this advice for consumers:

• Get a fixed-rate fuel contract. "If you haven't done so, call your company and ask them if they can provide a fixed price or capped contract for you," Martin says." Be careful when you do this and read the contract carefully, but you can buy a fixed amount for the season. Look into that and lock in your costs."
• Get rid of adjustable rate loans. "I have been saying that for months," Martin points out. "This is a time of uncertainty. We don't like it. Get certainty." He says interest rates are likely to go higher in the coming months.
• Put your cash into a money-market mutual fund. "Call and say, 'I want the highest-yielding money market mutual fund,'" he says. "They are paying 3.25 to 3.5 percent interest, double what they paid a year ago. Go get the highest one you can. Interest rates are getting interesting now."
• Invest in energy stocks. This is another piece of advice he has been giving all year. He says the Dow Jones Industrials' U.S. Energy Fund has gone up 12 percent since last month. "This is a way, if you are an investor, to earn a little bit of profit and cash in to offset your energy costs," Martin says. But he also warns that you can also lose money if prices go the other way.