Ike, Gustav, and the Bailout

Storm damage threatens the economy.

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The financial meltdown may be getting all the attention this week, but a third of Houston is still without power and the economic costs of hurricanes Ike and Gustav are mounting, adding more pressures on an economy that was muddling along even before the latest storms—real or on paper—slammed the Gulf and Lower Manhattan.

The combined costs of Hurricane Ike and Hurricane Gustav will be second only to Katrina. Damage from this month's storms will reach $42 billion (Katrina cost about $81 billion), according to Action Economics, which writes:

This is still a sizable jolt that will have large effects on the reported economic data over the next few months, even though markets are clearly now much more focused on the Treasury bailout plan.

The fallout could include lower personal income growth, slower retail sales, and slower third-quarter growth in the gross domestic product—all headwinds the markets don't need right now.