Hurricane Blues: High prices and uncertainty
The effects of hurricanes Katrina and Rita on African-American communities will be felt immediately in housing and household spending. The hurricanes slammed into the Gulf Coast in late August and mid-September, causing tens of billions of dollars worth of damage to the economies of Louisiana, Alabama, Mississippi and Texas. With major oil and gas pipelines along the Gulf Coast, as well as oil rigs and refineries, damaged in the storms, gasoline prices soared from an average $2.60 per gallon in pre-Katrina August to $3 to $5 per gallon by late September.
To be sure, says Maya Rockeymoore, president and founder of Global Policy Solutions, a policy and organizational-development consulting firm in Washington, D.C., the higher gasoline prices are affecting people in the lower economic stratum. Another whammy could come in the form of higher home heating oil prices this winter. “Increased fuel costs will disproportionately affect African-American first-time home buyers, many of whom were able to purchase overvalued properties through risky types of mortgages (such as interest-only loans and subprime lending),” says Rockeymoore. “Add rising interest rates and higher home heating bills to the mix and many families are going to be squeezed. They’re going to ask themselves ‘do I heat my home or do I pay my mortgage?’ ” she says. Not knowing where the economy may head, consumers will spend less on the little extras that their budgets no longer allow, she says. That’s good if it means “they are increasing their savings,” she notes.
Ironically, consumer spending is being encouraged in the hurricane-ravaged Gulf region. “Consumer spending will likely be heightened in [the Gulf region] since individuals affected are going to need to replace what they’ve lost,” says Boyce D. Watkins, assistant professor of finance at Syracuse University in Syracuse, N.Y.
Both economists worry whether President Bush will make good on his promise to use evacuees to rebuild their own communities, a move that would provide much needed income to those families. They cite recent moves by the Bush administration as cause for concern, including the Department of Labor’s suspension of the requirement that first-time government contractors have in place an Affirmative Action program that details their hiring of minorities, women, Vietnam veterans and the disabled. The requirement is standard for existing government contractors. DOL argues that the suspension—initially for three months—is designed to reduce the burden of paperwork, thereby encouraging more firms to join in the rebuilding effort.
The president also suspended the Davis-Bacon Act, which requires employers to pay the locally prevailing wage to construction workers on federally financed projects. The move has infuriated the NAACP, which called for a moratorium on all contracts until Davis-Bacon is reinstated. The NAACP and minority business organizations are closely monitoring the letting of hurricane-related contracts. “In the rush to rebuild, we should not overlook opportunities for minority-owned businesses to take part in this rebuilding,” warns John C. White, the NAACP’s director of communications.