Hurricane's damage could top $6 billion

Tropical Storm Irene was the first to make direct contact on New Jersey in 108 years, flooding towns like Pompton Lakes. NEW YORK (CNNMoney) -- Swaths of the Northeast still submerged under water face an arduous recovery as hundreds of homes remain clogged with mud and crushed roads isolate deluged communities. East coast residents and insurers also face billions of dollars in damages from Hurricane Irene. Print The damage to insured property is expected to range from $2 billion to $5 billion, according to an estimate from IHS Global Insight Analysis. Total economic losses, including uninsured, could range from $5 billion to $15 billion, according to IHS.

This is even higher than the estimate from catastrophe modeling firm AIR Worldwide, which projected that property losses from wind and storm surge damage could total from $3 billion to $6 billion. Kinetic Analysis Corp., which estimates the impact of natural and man-made disasters on the economy, said the damage could total $7 billion. Less than half of that -- some $3 billion -- will be covered by insurance, the company said. Officials from President Barack Obama's administration will travel Tuesday to Virginia, North Carolina and Vermont -- some of the hardest-hit states -- to survey ongoing response efforts, the Department of Homeland Security said. At least 27 deaths in nine states have been blamed on the storm known as Irene, with one person from Vermont still missing and feared dead. More than a day after Irene left the United States, floodwaters were still cresting late Monday night in Vermont. "It's just devastating," Gov. Peter Shumlin said Monday. "Whole communities under water, businesses, homes, obviously roads and bridges, rail transportation infrastructure. We've lost farmers' crops," he said. 0:00 / 1:08 Retailers see boost in Irene's wake Hundreds of people remained trapped Monday in communities cut off by raging floodwaters that damaged or destroyed 263 roads and bridges, Shumlin said. Exactly how many were stranded remained unclear, he said. Forecasters predicted the Passaic River in New Jersey would continue swelling Tuesday, doubling the level considered a "flood stage" in some areas. And the town of Prattsville, New York -- more than two hours away from the coastline -- is now virtually unrecognizable. The area flooded when Schoharie Creek rose more than 15 feet in less than 12 hours and intense rainfall funneling down the Catskill Mountains sent a volume of water greater than that of Niagara Falls -- both the American and Canadian sides -- crashing through town, Greene County Administrator Shaun Groden said. Hurricane Irene damage could reach billions "People can't go home. They have nothing, floors all mud, car on top of the deck. They've lost everything," said Elsie Stuppert, an employee of the Hideaway Hotel in Prattsville. With bridges destroyed all around them, 21 people who had been stranded in Prattsville were rescued Monday after four trips by a state police helicopter. In addition to the continuous flooding, residents up and down the East Coast are still contending with power outages. As of Monday, about 5 million customers were without power, said Craig Fugate, director of the Federal Emergency Management Agency, citing figures from the Department of Energy. That number was down from about 6 million earlier, he said. Connecticut Light & Power ( CNLTP ) reported Monday night that an estimated half million people had no power. Some customers might have to wait a week or more because of damage to the system. But the havoc Irene wreaked on transportation is only beginning to subside. Amtrak announced train service between New York and Boston will resume Tuesday. And airlines are recovering after canceling thousands of flights over the weekend. About 650,000 to 700,000 air travelers have been grounded since Friday because of flight cancellations prompted by Irene, said Daniel Baker, CEO of FlightAware.com, a flight tracking service. "I'm ready to go so I can go to work. Get to the airport, cancellation," said Jerry Delerme, who was trying to fly to New York from south Florida. It will take a few days for everyone to get where they want to go, said Mateo Leras, a spokesman for JetBlue ( JBLU ). Tuesday and Wednesday are usually the slowest air travel days of the week, which will help travelers get on the flights they want, said Todd Lehmacher, a spokesman for US Airways ( LCC , Fortune 500). The full extent of Irene's damage won't be known for some time. The U.S. government estimates that the cost from wind damage alone will exceed $1 billion. Analysts have put the total anticipated cost of Irene much higher. Still, shares of insurers Travelers Companies Inc. ( TRV , Fortune 500), Hartford Financial Services Group ( HIG , Fortune 500), and Allstate ( ALL , Fortune 500) rallied Monday on relief that the damages weren't worse. MetLife ( MET , Fortune 500) and Chubb Corp. ( CB , Fortune 500) also got a boost. 

Americans spend more in July

Consumers picked up their spending 0.8% in July, a slightly encouraging sign for the economy after they cut back just a month before. NEW YORK (CNNMoney) -- After holding back the month before, American consumers spent their hard-earned money a bit more freely in July. Personal spending rose $88.4 billion, or 0.8% in July, after falling 0.1% in June, the Commerce Department reported Monday. Print The data was seen as slightly encouraging news after other recent reports have shown weakness in the U.S. economy.

Consumer spending accounts for roughly 70% of U.S. economic activity, but so far, it has recovered sluggishly from the financial crisis. Against that backdrop, economists immediately called Monday's data "encouraging," "decent" and "solid," and said it makes the odds of a double-dip recession less likely. Paul Dales, senior economist with Capital Economics, raised his outlook for third-quarter economic growth to 2.5% after the report was released, up from his previous forecast of 1.5% growth. But he was also quick to caution that July spending still just one month of data, and does not yet include the impact of August's stock-market plunge, dismal economic headlines and Hurricane Irene. "It is possible, and probably likely, that the August data will be weaker," he said. You paid what?! Where the money went: Spending increased most notably on durable goods, a category that includes long-lasting products like cars and appliances. Consumers had previously cut back their spending on durables for four straight months, so a blip up was considered a welcome rebound. Economists say much of that rebound was probably due an increase in car sales, which had been subdue following supply disruptions from the Japanese earthquake in March. Spending on services and non-durable goods also rose modestly in July. Where the money came from: The increase in spending was funded partially by rising incomes, which include not just wages and salaries, but also government-provided benefits like Social Security, Medicare or unemployment insurance, rental income and earnings from investments. Overall, personal income rose 0.3% in July, after increasing 0.2% the month before. But spending was also fueled by consumers stashing less of their cash in savings. Savings as a percentage of income fell to 5% in July, down from 5.5% the month before. "That's not a long-term sustained way of funding your spending," Dales said. 0:00 / 1:08 Retailers see boost in Irene's wake Inflation: The prices consumers paid on goods and services rose 0.4% in July, the government report said, marking a turnaround from June, when prices fell 0.1%. Core PCE, which excludes volatile energy and food prices, rose 0.2%. The Federal Reserve closely monitors this inflation reading to guide its policy decisionmaking. Over the last 12 months, core PCE has risen 1.6%, staying within the Fed's comfort zone of 1% to 2% inflation.  

Inflation (CPI)

Food prices are up 4.2% and gas rose 33.6% over the last 12 months. Stripping out those items though, consumer prices are up 1.8%, according to government data released Thursday. NEW YORK (CNNMoney) -- Americans paid more for necessities like gas, food, clothing and shelter in July, as prices rose more than expected over the month. The Consumer Price Index, the government's key inflation measure, rose 0.5% in July, led by a 4.7% increase in gas prices. Print That's worrisome, said Daniel Penrod, senior industry analyst with the California Credit Union League, considering many Americans are still struggling amid high unemployment and low home prices.

"We're looking at a situation where income isn't growing, so large price jumps right now without job growth and income growth behind it, basically mean that consumers are looking at more of their money going out the door at a time when less of it's coming back in on an income side," Penrod said. Food prices rose 0.4% and the cost of shelter rose 0.3% in July. Higher clothing prices, predicted by the industry earlier this year, have also taken hold. Apparel prices rose 1.2% in July alone, and over the last three months, are up 3.9%. Over the entire year, apparel prices have increased at their fastest rate since 1992. Part of that rise could still be due to cotton prices hitting a record high in March, following supply shortages. The weak dollar is also driving prices for imports, including clothing, higher, said Jennifer Lee, senior economist with BMO Capital Economics. "We import a lot of clothing from China for example, and a weak dollar means it costs more to ship to bring these goods over to the U.S." she said. 0:00 / 4:14 Band-aids and gum won't fix economy Economists hadn't expected the overall CPI number to come in as high as it did. Forecasts, according to a survey from Briefing.com, were for a 0.2% rise in July. Overall, consumer prices have risen 12 of the last 13 months, despite a one-month blip downward in June, and compared to a year ago, consumers are paying 3.6% more for goods and services. Bachmann: I'll bring back $2 gas Year-over-year, gas prices are still up 33.6%, even after falling slightly from their highs in May. Food prices are up 4.2% from a year ago. Both gas and food can be volatile though, so economists also look at a separate measure to better gauge inflation trends. So-called core CPI, which strips out those components, rose 1.8% over the last 12 months, and 0.2% in July alone, in line with economists' expectations. The Federal Reserve's comfort zone is for a core inflation rate to remain between 1% and 2% a year.  

Irene may cause gas price spike as one refinery shuts down

Analysts say up to 10% of the nation's refining capacity could be offline in the coming days thanks to Hurricane Irene. NEW YORK (CNNMoney) -- Hurricane Irene headed up the East Coast Saturday, threatening the nearly 10% of the nation's refining capacity that lies in Philadelphia, New Jersey and Delaware. Output for the refineries in the hurricane's path is over a million barrel per day, according to the Oil Price Information Service. Print Late Saturday, ConocoPhillips ( COP , Fortune 500) shut its Bayway refinery in Linden, N.J., according to the company's website. The refinery has a processing capacity of 238,000 barrels per day of light, low sulfur, crude oil.

Currently, the company's Trainer refinery in Trainer, Pa., which can process 185,000 barrels per day, remains open. ConocoPhillips is also preparing to shut down its East Coast Terminals. Analysts say refineries may close for several days thanks to Hurricane Irene. At PBF Energy refineries in Delaware and New Jersey, large ships have been sent to sea to avoid potential damage from crashing into docks, said Michael Gayda, the company's president. On Saturday, Gayda said the refineries were running at "planned rates" and that the company had put workers on double shifts "just to be cautious." Gas spending and prices by state Other pre-storm precautions include clearing away debris from drainage pipes and disassembling any construction equipment like cranes or scaffolding that could get blown down during the storm. Gayda said no decision has been made yet as to whether the refineries will shut down or move into a "warm" mode. That mode is a partial shutdown. The company is monitoring the weather via weather services that tailor forecasts specifically to the refineries before making that decision. "'We have a comprehensive emergency response plan in place," said Gayda. Gasoline futures traded in New York have already spiked, rising 10 cents a gallon last week, largely on fears there will be a disruption in output from the refineries, barge routes or pipelines serving the heavily populated eastern seaboard. That, combined with heavy travel during the upcoming Labor Day weekend, could send prices at the pump up 15 to 20 cents over the next couple of weeks, said Stephen Schork, publisher of the industry newsletter the Schork Report. "You'll probably see a temporary pop," said Schork. "It really all depends on how bad the disruptions are." Refineries are generally built to withstand winds from a category 5 hurricane. But they often rely on outside electricity to refine oil, and even downed wires inside the plant can cause trouble for the operation. Hurricane Irene barrels up the East Coast - CNN Irene is a Category 1 hurricane. Category 1 storms have sustained winds of 85 mph, with wind gusts of up to 105 mph. Winds of that speed are described as extremely dangerous and capable of causing extensive damage. "The restoration of power supplies is crucial, and electricity disruptions are common after a hurricane," according to an American Petroleum Institute hurricane fact sheet. 0:00 / 1:22 Insurers brace for stormy sell-off It's far better for refineries begin an orderly shut down of their facilities, which can take many hours, than deal with a sudden power outage that could lead to dangerous conditions, said Tom Kloza, chief oil analyst at the OPIS. Kloza expects retail gas prices, which edged up to $3.604 a gallon Saturday from $3.592 on Friday, will keep rising as the spike in futures prices from last week works its way into the market. But both he and Schork think that over the long run, gas prices should fall. Schork noted that come mid-September the nation shifts to less expensive "winter gas," which doesn't need to be refined as much because the cooler air is less conducive to smog formation. And Kloza noted that despite all the hype around the hurricane, the end result is that big storms tend to keep people off the road. "Bottom line: Hurricanes are much more reliable demand destroyers than supply destroyers," he said.  

Weak growth. Monster debt. Which to tackle first?

NEW YORK (CNNMoney) -- It's easy to read the latest budget outlook from the Congressional Budget Office as further proof that the United States really needs to get serious about dealing with the national debt. But if that's all that lawmakers take away, they will have missed a big point. Print The CBO is not in the business of telling Congress what to do. But it is in the business of showing Congress how what it chooses to do may affect the country's economic future. One of the big lessons in the latest CBO analysis is that lawmakers should tread carefully when deciding how to tamp down debt so as not to unduly upend economic growth.

The CBO believes economic growth in the next few years will be modest. That's assuming three big things: the Bush-era tax cuts would expire, resulting in bigger tax bills; spending cuts would be enacted as per the recently passed Budget Control Act; and stimulus measures -- such as extended unemployment benefits -- will have run out. If all that comes to pass, the agency estimates that growth in 2013 would be between 1.5% and 3.5% lower than would otherwise be the case. That's not surprising. Given the already slow economic recovery and the fact that interest rates can't fall much farther, "reductions in government spending or an increase in taxes ... will slow economic growth and reduce employment," CBO director Douglas Elmendorf said in a meeting with reporters. At the same time, letting the debt grow unbridled can also hurt future economic growth. Big deficit for 2011, but some improvement on tap So what's a partisan-driven policymaker to do? Don't be a slave to ideology and apply a little finesse to your task. "It's possible to structure deficit reduction in a way that does not have as large a dampening effect on output and employment in the near term while still achieving significant deficit reduction over the decade and the longer term," Elmendorf said. "That amounts principally to having the policy changes take place later." That is, policymakers could support near-term economic growth by increasing spending (or at least not cutting it) and lowering taxes (or at least not raising them). The potential negative effects of those policy actions on the debt could be offset or more than offset so long as they are simultaneously paired with measures that impose medium- and long-term fiscal restraint -- namely lower spending and higher tax revenue, he explained. Finesse will also be required when it comes to choosing which types of belt tightening to enact. That's because not all spending cuts (or tax hikes) are created equal. 0:00 / 3:01 Lobbying the 'Super 12' "The composition of the policy actions to narrow the budget deficit can matter a great deal to the future state of the economy and also, of course, matter a great deal to what sorts of public and private goods and services this country has," Elmendorf said. For example, raising tax rates may discourage work and savings. But increasing revenue by ending some tax breaks may have a positive effect on the economy. That's because people will base decisions more on the economic merits of a move rather than on whether it's deductible. Similarly, some spending cuts will reduce consumption while others will reduce investments in the economy. There's no perfect formula for how to get all of this right. But there is one unambiguous way lawmakers can support economic growth, Elmendorf suggested. Laying out a long-term fiscal path sooner rather than later. "Uncertainty about government policy is not helpful for encouraging household spending, business investment ... and decisions to hire. Earlier resolution of how fiscal policy will play out will be good for economic growth."  

Foreclosure settlement: Spat among the states

A mortgage foreclosure settlement is being held up by a dispute among the states. WASHINGTON (CNNMoney) -- A deal to help victims of improper foreclosures has been slow going, in large part because of infighting among state attorneys general over giving banks a free pass from future lawsuits. The talks are between the attorneys general and federal agencies on one side, and the five largest mortgage servicers, which comprise nearly 60% of the market: Bank of America ( BAC , Fortune 500), Wells Fargo ( WFC , Fortune 500), J.P. Morgan Chase ( JPM , Fortune 500), Citigroup ( C , Fortune 500) and Ally Financial ( GJM ). Print Comment Attorneys general in states with stronger fraud enforcement laws, such as New York, Delaware and Massachusetts, don't want to give up the right to go after banks in future fraud lawsuits.

And a few other state attorneys general have balked at the draft versions they consider too tough on the banks, according to sources familiar with the talks. The infighting came to a head Tuesday, when Iowa Attorney General Tom Miller -- who had been leading the talks on behalf of the states --- booted New York Attorney General Eric Schneiderman from an executive team, accusing Schneiderman of "working to actively undermine" a deal with the states. A call to the New York Attorney General's office was not immediately returned. At the heart of the talks are wholesale changes in the policies and practices of mortgage servicing that could help consumers, especially those behind on payments. But the banks, while willing to commit to some massive changes, are pushing for immunity from future lawsuits. Also at stake is a reported $20 billion pot of money, to be collected from the banks, that states could use to modify mortgages and counsel underwater homeowners, according to sources familiar with the talks. 0:00 / 2:07 Mortgage denied despite perfect credit Schneiderman has been tough on the banks. Earlier this month, his office filed a motion to oppose a proposed $8.5 billion settlement between investors and Bank of America and the Bank of New York over bad mortgage-backed securities. Schneiderman called that deal "unfair and inadequate" in court records. Number of troubled mortgages on the rise again He has his own broad investigation into banks that sold mortgages to investors, zeroing in on some of the same banks involved in the settlement talks. Schneiderman's probe targets the practice of assigning and bundling mortgages into securities, sources familiar with that investigation have said. And he has said over the past several months that any deal with banks on foreclosure practices shouldn't prevent individual states from their own investigations into the mortgage-servicing industry. If New York pulls out entirely, it could dampen down any final settlement award. But New York could still back the deal. The government probe of mortgage servicers followed reports that the institutions were using shoddy documentation to improperly foreclose on homeowners. That news prompted several servicers to halt foreclosures for a short period of time. The attorneys general launched the probe in October to review improper documentation and mortgage modifications. Federal government agencies involved include the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Federal Trade Commission as well as the new Consumer Financial Protection Bureau. 

Rise in durable goods orders is a "relief"

A spike in aircraft orders in July lead to a rare piece of good economic news Wednesday. NEW YORK (CNNMoney) -- Strong aircraft orders in July resulted in a much stronger-than-expected reading for big ticket item orders, a rare piece of good news amid the string of disappointing economic readings in recent months. The Commerce Department reported a 4% jump in orders for durable goods, compared to a 1.3% decline in June. Economists surveyed by Briefing.com had forecast only a 1.9% rise in the month. Print A 43.4% spike in orders for nondefense aircraft and an 11.5% rise in new vehicle orders led the way to the better than expected result.

American Airlines ( AMR , Fortune 500) announced a massive order for 460 aircraft on July 20. But only the 200 of the aircraft it ordered from U.S. aircraft maker Boeing ( BA , Fortune 500) would have been counted in Wednesday's reading, because the other aircraft will be sold by Boeing's European rival Airbus. Stripping out those results reveals a far weaker level of demand from businesses and consumers; orders excluding transportation goods rose only 0.7%. There were drops in new orders for such items as computers and electronics, machinery, communication equipment and fabricated metal products. "Orders are certainly not as good as they look," said Paul Dales, senior U.S. economist for Capital Economics. "Nonetheless, they still suggest that business investment growth may actually accelerate in the third quarter." He said the 0.7% rise in non-transportation orders, rather than the 0.5% drop forecast by economists, was a "relief." 0:00 / 3:44 American Airlines' spending spree Still, non-defense, non-aircraft capital goods orders were down 1.5%. That category is typically used as a proxy for demand from businesses and therefore seen by economists as the core reading in the report. But Peter Newland of Barclays Capital said that is at least partly explained by the regular drop in orders in the first month of a new quarter. "While we would play down the significant boost to orders growth from the volatile aircraft component, we would also play down the weakness of core orders given the apparent monthly pattern," he said. The strong headline number and the modest gain outside of transportation was enough to cheer investors. While stock futures had been down, pointing to a lower significantly open, before the 8:30 a.m. ET report, major indexes opened down only slightly an hour later.