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Jobless claims surge after Katrina

Consumers can expect to pay more for everything, not just gas

Rick Griffin, left, of Maricopa Work Force Development, helps Hurricane Katrina evacuee Troy Felder, right, of New Orleans, in designing a resume during a job fair at Arizona Veterans Memorial. Felder is attempting to relocate to Arizona. A total of 68,00
Rick Griffin, left, of Maricopa Work Force Development, helps Hurricane Katrina evacuee Troy Felder, right, of New Orleans, in designing a resume during a job fair at Arizona Veterans Memorial. Felder is attempting to relocate to Arizona. A total of 68,000 Americans lost their jobs due to Hurricane Katrina and filed for unemployment benefits this past week.
Paul Connors, Associated Press

WASHINGTON — Hurricane Katrina triggered the biggest one-week surge in jobless claims in nearly a decade and analysts warn that's likely just the beginning of the bad economic news ahead as the nation starts paying for the most expensive natural disaster in U.S. history.

Consumers, already feeling the pinch at the gas pump, should be braced for price hikes for various products and services. Everything from food to furniture to shoes could start becoming more expensive as retailers pass on higher shipping costs to consumers.

"We are just starting to see the impact of Katrina. We are going to see awful inflation numbers, awful employment numbers and awful industrial production numbers for a few months," said Nariman Behravesh, chief economist at Global Insight, a Lexington, Mass., forecasting firm.

Gas prices were rising even before Katrina but they spiked immediately afterward because the storm caused widespread shutdowns of oil platforms, refineries and pipelines. Hundreds of thousands of people are out of work in the region and the rebuilding effort is expected to take years and cost hundreds of billions of dollars.

The Labor Department reported Thursday that applications for unemployment benefits jumped by 71,000 last week, the biggest increase since the East Coast blizzard of 1996.

The government said 68,000 of those claims were hurricane-related and analysts predicted that number would climb higher in coming weeks as more laid-off workers get around to filing claims and state unemployment offices process a backlog of claims already filed.

In other bad economic news, the Labor Department reported consumer inflation grew by 0.5 percent in August, after a similar jump in July. Both increases were driven by surging energy prices.

Economists said the September figure is likely to be worse, noting that gasoline reached its record high of more than $3 a gallon this month and other fuel prices increased as well.

While gasoline prices have retreated a bit in recent days, pump prices for the first two weeks of September were up 30 percent from a month ago. Analysts said the increase could drive up the overall inflation number by as much as 0.8 percent in September, which would be the biggest one-month surge in 15 years.

Economists predicted that the so-called core rate of inflation, which excludes energy and food, would likely begin rising as well, reflecting that energy price pressures are beginning to spread to the rest of the economy.

So far, those increases have not shown up in the data. The core inflation rate was up just 0.1 percent in August, the fifth straight month in which it has barely budged.

Behravesh said that with airlines raising the cost of tickets to recoup higher jet fuel costs and with shipping companies adding on surcharges, the core inflation rate could be pushed as high as 0.4 percent in coming months.

If inflation pressures outside of energy do start rising, that could prompt the Federal Reserve to abandon its gradual quarter-point rate hikes for a more aggressive campaign to make sure inflation does not get out of control. The Fed meets next Tuesday.

"If underlying inflation begins to percolate higher, that will mean we will have to struggle with rising prices and higher interest rates," said Mark Zandi, chief economist at

Such a development would raise the risks of a full-fledged recession, something that economists still rate as a low probability. They contend that the most likely outcome of Katrina will be a reduction of 400,000 jobs over the next four months and a slowdown in economic growth of perhaps a full percentage point.

However, they are forecasting that the economy will be growing more strongly by early next year, with employment rebounding as reconstruction of damaged areas gets under way in earnest.

Zandi said this scenario will remain the most likely outcome as long as soaring energy costs do not spill over into widespread price increases in the rest of the economy. Such a development could rattle consumer confidence, causing them to cut back more severely on their spending.

A Pew Research poll released Thursday found 37 percent of those surveyed expect economic conditions will worsen a year from now. That was up from 18 percent in January and the highest level of pessimism about the economy since President Bush took office.

Part of that probably reflects the effect soaring gasoline prices are having on American pocketbooks. The government said Thursday that Americans' average weekly earnings fell by 0.5 percent in August, after adjusting for inflation. It was the fifth decline in the past eight months.

Ben Bernanke, chairman of the president's Council of Economic Advisers, said in a speech Thursday that Katrina will have a "palpable effect on the national economy" especially in the current July-September quarter. But he forecast that recovery and rebuilding efforts would boost growth perhaps as quickly as the end of the year.