What's Important in the Financial World (8/27/2012)

Hurricane Isaac Poised to Strike U.S. Economy

Isaac, now a Category 1 hurricane that could become a Category 2, will have some effect on the U.S. economy even if it does not make a direct hit on a major city. Damage estimates to residences have risen has high as $39 billion, which will trigger large insurance claims. All of the oil platforms in the eastern portion of the Gulf of Mexico have been evacuated, which almost certainly will drive the price of oil higher temporarily. WTI crude prices have moved up by 1% today to more than $97. Business activity and tourism will be hurt along the beaches from Florida to Texas. And perhaps more important is that Isaac could move across New Orleans, which never has completely recovered from Hurricane Katrina. The effect could only be a small fraction of a percent of gross domestic product, but in a rough economy, every tiny fraction of harm counts.

The Fallout from Apple vs. Samsung

It may take months for the shock waves from the Samsung legal loss in a patent suit with Apple Inc. (NASDAQ: AAPL) to change the smartphone industry’s landscape. Samsung has to immediately decide whether it should redesign some of its handsets while its awaits the possibility of an appeal. Some of Samsung’s phones may be blocked from import into the United States. The arguments about other winners and losers have started. Most experts think that the troubled partnership between Nokia Corp. (NYSE: NOK) and Microsoft Corp. (NASDAQ: MSFT) may be helped. No patent claims have been filed against the Windows mobile OS. Nokia sales have dropped sharply in the past two years. It lost the position as the number one market of handsets worldwide to Samsung late in 2011. The decision could make the Nokia/Microsoft products more popular with carriers. Fallout from the legal decision also could hurt Google Inc. (NASDAQ: GOOG), if Apple brings a case against the intellectual property of its extremely successful Android mobile OS. Samsung runs Android on a number of its smartphones, but the operating system was not part of the Apple vs. Samsung battle. Apple is more vexed by Android than any other product in the smartphone universe.

Gasoline Prices Rise Again

The nationwide average price for a gallon of regular rose seven cents over the past two weeks, according to the Lundberg Survey. That puts the price at $3.76. In the previous two weeks, the price rose 19 cents. Some economists believe that gas prices are high enough to undermine consumer spending, particularly among lower and middle-class households in which driving to work and school is a major expense. Gas prices were just as high, if not higher, last spring, but gross domestic product was up then. Growth may be under 1% in the second half. The Congressional Budget Office recently reported that the “fiscal cliff” could cause GDP contraction in the first half of 2013. Add in gas prices that remain high, and consumer activity could contract sharply during the Christmas shopping season and then into the start of next year.

Douglas A. McIntyre