By Sonja Ryst Standard & Poor's sees the twin late-summer storms that struck the U.S. Gulf Coast -- Hurricanes Rita and Katrina -- as offering only mild setbacks to U.S. economic growth. Analysts at S&P -- which, like BusinessWeek Online, is a unit of The McGraw-Hill Companies -- forecast in a Sept. 28 teleconference that economic growth will amount to 3.1% in the second half of 2005, vs. 3.8% they had estimated before the hurricanes.
The damage "looks to be minor, and things will be back up and in operation fairly quickly," said David Wyss, chief economist at S&P.
Only about 5% of refinery capacity remains shut down long term after Katrina slammed violent winds and flooding into the Gulf Coast in late August. Although Rita's damage to another 15% of capacity is now being assessed, Wyss thinks that production will recover quickly. He expects everything to return to normal by the end of this year.
SHUTTING THE TAPS. As Hurricane Rita approached, 16 refineries along the Gulf Coast closed so that employees could evacuate the area before the howling winds hit. Half the refineries remain completely shut down, the U.S. Energy Information Administration said Sept. 2
Meanwhile four additional refineries remain shut down following Hurricane Katrina. Over a dozen gas-processing plants - including Tennessee Gas Pipeline and Sabine Pipeline -- have confirmed that they're off-line, owing either to flooding, lack of supplies, an inability to move stored liquids, or safety precautions, the EIA added.
The hurricanes have hit more than refineries. After the devastation in cities such as New Orleans, insurance-company officials have been paying for some of their customers' damages. S&P said on Sept. 28 that Rita will most likely cause $3 billion to $7 billion in insured losses, in addition to the industry consensus of about $40 billion of insured losses stemming from Katrina.
REINSURANCE HIT. S&P Ratings Services is watching several companies carefully to see if they need ratings downgrades in the coming months. Allstate's (ALL) A+ ratings, for example, were placed on CreditWatch with negative implications earlier this month because of the company's exposure to Louisiana, Mississippi, and Alabama. (In addition, Allstate doesn't have reinsurance protection in these states.) S&P also said at the time that ACE's (ACE) BBB+ ratings might be lowered by at most a notch, as analysts no longer know if the company can meet its earnings expectations.
S&P's equity-research department revised its outlook on the global reinsurance industry to negative from stable, reflecting near-term uncertainties stemming from the hurricanes. Nonetheless, S&P predicts that most companies will resolve their uncertainties by raising funds or providing additional information about their losses.
WAITING OUT THE SEASON. Insurance companies aren't the only ones opening their wallets to clean up the hurricane damages. Congress has already appropriated more than $60 billion to provide services that can range from rescuing stranded flood victims to pumping water out of New Orleans. Given such plans for government spending, S&P thinks the federal deficit is likely to rise in 2006.
"The bad news is that the hurricane season isn't over yet," Wyss said. Hurricanes need warm tropical oceans, moisture, and light winds above them, according to National Oceanic & Atmospheric Administration's Web site. There are on average six Atlantic hurricanes each year. Over a three-year period, approximately five hurricanes strike the U.S. coastline from Texas to Maine. The hurricane season ends Nov. 30.
Ryst is a reporter for BusinessWeek Online in New York