Hurricane Takes Toll on U.S. Income

Hurricane Katrina caused personal income to fall in August, reflecting $100 billion in losses by people who had inadequate insurance to cover damage to homes, businesses and vehicles, the Commerce Department reported Friday.

The Commerce report showed that spending was on the skids even before Katrina struck. Soaring gasoline prices caused consumers to reduce spending by the largest amount since the terrorist attacks on Sept. 11, 2001.

The 1% drop in spending, after adjusting for inflation, reflected not only the pain at the gas pump but also a cutback in purchases of new cars after two big sales months caused by deep discounts.

The effect of $3-a-gallon gas is taking a toll on consumer confidence. The University of Michigan reported that its confidence survey for September fell to 76.9, the lowest level in 12 years. The August and September declines are the biggest back-to-back drops on record.

“High gas prices had a devastating impact on consumers’ budgets and caused consumers to expect a worsening financial situation during the year ahead,” said Richard Curtin, director of the Michigan survey.

Analysts said they still expected the economy to rebound from the hurricane and energy-related blows but cautioned that statistics over the next two months would look grim.

“We are starting to get early estimates of the impacts of Katrina and they are ugly,” said Joel Naroff, chief economist at Naroff Economic Advisors.

The Commerce Department report on income and spending estimated that Katrina resulted in $100 billion in property losses not covered by insurance. It estimated that $70 billion in insurance payments would be made.

Excluding the uninsured losses, the government said that income rose 0.2% in August. In the government’s accounting method, both the losses and the payments were recorded on the day the hurricane hit.