Assessing Gustav

Boy, talk about getting ahead of ourselves. The quasi-hurricane (the WSJ's David Gaffen calls it a "hurristorm") hasn't even hit the western tip of Cuba, and the state of Louisiana is already planning a mandatory evacuation, perhaps as early as Saturday. Of course, this is as much about politics as it is about prudence. With the GOP convention getting started on Monday, Gustav is one storm that will get the attention of practically every living Republican politician (funny how that works). It’s way too soon to consider the potential economic impact, other than a bunch of “could happens…” If you recall, Katrina was more a regional than national disaster, which is typically what happens with these events. From Real Time Economics:

The one area that may ride out this storm better than it did last time is the energy sector. Thanks to high prices, demand for energy is down this year, so a supply shock may not be so disruptive to consumer spending this time. Even the spike in oil prices this week, to nearly $120 per barrel, doesn’t look as ominous since Americans were dealing with oil at $140 a barrel just two months ago. Plus, after Katrina, oil prices fell back quickly. Consumers may expect the same to happen this time around, resulting in less of a drag on spending and confidence.

Indeed, oil is back down to $115 a barrel, in part because the storm's future course is still up in the air and because the markets are headed into the long three-day weekend – too much time for traders to be sticking their necks out.