Storms, Gas Prices Hit Home

$100B In Uninsured Losses From Katrina; Consumer Spending Plunged In August Full Point As Gas Prices Soared

(CBS/AP) 
Analysts, however, believe that the spike in energy prices seen in August and early September will not be enough to shut down consumers' appetite to spend on other items, although they are forecasting that economic growth in the current July-September quarter will be lowered by as much as a full percentage point.

The 1 percent drop in spending after adjusting for inflation compared to a 0.5 percent decline in spending before inflation was taken out. The difference largely reflected the fact that consumers were buying more expensive gasoline to fill up their cars during the month.

Income after adjusting for taxes fell by 0.1 percent in August after an increase of 0.4 percent in July.

Americans' personal savings rate remained in negative territory in August at minus 0.7 percent. That compared to a minus 1.1 percent personal savings rate in July, which had been the all-time low.

When the savings rate is in negative territory, it means that Americans are not only spending all of their after-tax income but they are dipping into savings accumulated in earlier months to finance spending.

Adding to the decline in consumer spending in August was a falloff in sales of new cars, which plunged during the month after huge gains in July that reflected attractive incentive offers.

Before the hurricanes hit and gasoline prices surged above $3 per gallon for a time, analysts had been predicting that economic growth in the current quarter would come in at a sizzling 4 percent-plus level. Now analysts have shaved those forecasts to around 3 percent to reflect the lost jobs and lowered spending caused by the hurricanes.

Some economists believe that growth in the fourth quarter will dip even lower to around 2.8 percent as the country continues to struggle with the fallout from the hurricanes and higher energy bills.

But the Congressional Budget Office said Thursday it believed the impact from Katrina and Rita probably would be "more modest" than the CBO estimated on Sept. 6 for just Katrina.

The CBO said it now believes the hurricanes will cut growth by one-half of a percentage point in the second half of this year, with most of that damage in the July through September period. By the final three months of 2005, spending on rebuilding will help to offset the economic damage, according to the CBO.

In its earlier report, the CBO said the impact on GDP growth probably would be from one-half of a percentage point to a full percentage point over the second half of the year.