Katrina to affect US growth and inflation adversely amid otherwise-positive trend

A Bloomberg survey shows that economists have reduced forecasts for US growth rates for the third and fourth quarters and raised inflation estimates after Hurricane Katrina.

The world's largest economy will grow at a 3.6 percent annual rate from July through September instead of the 4.1 percent forecasters predicted a month ago, based on the median estimate in the latest monthly survey of 57 economists. The consumer price index may rise at a 3.5 percent rate this quarter from a year earlier, up from last month's forecast of 3 percent...

The forecast for fourth-quarter growth in gross domestic product fell to a 3.1 percent annual rate from the previous prediction of 3.5 percent. Consumer prices may rise 3.2 percent, up from the earlier estimate of 2.9 percent, the survey showed.

However, there was some optimism for 2006.

"We're leaning toward raising" GDP estimates for early 2006 "given the explosive growth that we are seeing for the federal government in terms of spending," said Mark Vitner, a senior economist at Wachovia Corp., in an interview yesterday.

Rupkey, the Bank of Tokyo economist, said there is "always a silver lining, and after every storm there is a period of rebuilding and new construction."

"The scale of rebuilding in the devastated areas of the Gulf Coast will be unprecedented and the sheer dollar volume is likely to push GDP growth above trend in the first half of 2006," Rupkey said.

The OECD's composite leading indicators for July show that the pre-Katrina trend had been strong for the US, rising 0.4 percent. Europe and Japan had also shown improving trends.

News from industry, particularly the chip industry, has also been positive recently. On Thursday, Intel said it "continues to see double-digit year-over-year growth driven primarily by strong demand for notebook PC platforms", Texas Instruments raised its financial targets for the current quarter, citing broad-based demand, and National Semiconductor reported better-than-expected quarterly results and revenue forecast.