WASHINGTON — The Congressional Budget Office, in its first assessment of Hurricane Katrina’s impact on the U.S. economy, said Wednesday that it could reduce employment by 400,000 jobs this year and slow economic expansion by as much as a percentage point.
As government officials and the private sector struggle with the scope of Katrina’s toll, President Bush formally asked Congress to approve another $51.8 billion in emergency relief funds to help recovery efforts in the devastated Gulf Coast region. Lawmakers approved an initial $10.5 billion relief package last week, which the President described as a “down payment.” The latest request might be passed as soon as today.
House Majority Whip Roy Blunt (R., Mo.) also has indicated that an economic stimulus package, including potential tax breaks and loan guarantees, might be needed.
Administration officials and lawmakers have estimated that relief expenditures may far exceed the $21 billion allocated for New York after the Sept. 11 terrorist attacks.
The budget office said in a letter to Senate and House leaders that, “while making specific estimates is fraught with uncertainty, evidence to date suggests that overall economic effects will be significant, but not overwhelming.”
The rising expenditures to cope with widespread destruction and flooding come as Bush and Republican allies in Congress sought approval for spending reductions for programs such as Medicaid, extending expiring tax cuts and trimming the federal deficit.
Employment had been on a growth track of 150,000 to 200,000 jobs per month in the second half, while most economists had predicted gross domestic product gains of 3 to 4 percent in that period, the budget office said.
Despite the hit to the economy, federal budget analysts stated economic growth and employment are “likely to rebound” during the first half of 2006 as the pace of rebuilding quickens.
Economic activity outside of the hard-hit areas in Louisiana, Mississippi and Alabama also will be “adversely impacted” through higher energy prices, which will temporarily affect consumption. But the report said soaring gasoline prices would return to pre-hurricane levels and consumption would “bounce back.”