Freddie Mac's September Economic Outlook was titled Katrina. The October report was headlined Rita; just a small not to the economic impact the back-to-back hurricanes are expected to have on the country's financial picture.

The monthly report, issued from the Office of the Chief Economist, was a mix of pessimism and optimism. As to glasses half empty, it noted that the two storms hitting the same coastline will have severe repercussions for economic growth and the labor market and cited the Department of Labor's report for September that showed that non-farm employment fell for the first time in 30 months, down by 35,000 jobs. When coupled with the average job gain of 194,000 positions over each of the last 12 months, we have seen over 200,000 expected jobs wiped out by the wind, storm surge, and broken levees. The retail sector lost 88,000 jobs and leisure and hospitality 80,000 as the tourist industry was whacked by the weather. Manufacturing lost jobs, yet again, 27,000 this time but that is an old story and the hurricanes probably had little to do with it. Construction jobs were up again and single family housing remains on its record pace.

While unemployment rose 0.2 percent over August figures to 5.1 percent in September, this was far less than economists had estimated immediately after the storms. The report cautioned, however, that the full impact of the storms, especially Rita, is not fully accounted for in the September figures.

The report projected that closed businesses, lost jobs, and the damage to the country's fifth busiest port, New Orleans, coupled with higher energy costs - not entirely related to the weather - will cut the growth of Gross Domestic Product by about ½ percent during the last months of this year.

The office increased its estimate of Consumer Price Index inflation in the first quarter from 3.2 percent to 5.5 percent due largely to the disruption in oil production and refining resulting from Rita and Katrina.

On the optimistic side, the Chief Economist predicts that housing starts will remain strong at 2.4 million units this year and 1.9 million next year and they did not change earlier estimates of home starts from 7.31 million units this year and 7.07 in 2006.

The report forecasts that the Federal Reserve Board will continue to gradually increase short-term interest rates as it has over its last 11 meetings, and long term rates, which have been lagging short term increases, will move the 30-year fixed rate mortgage to around 6 percent by the end of this year and near 6.4 percent by late 2006. (In fact, as reported this week, two recent rate reports pegged average 30 year rates last week at 5.98 percent and ascending, with over two months left in the year.)

Freddie Mac does see some slowing in home value appreciation. It has lowered its projection for the third quarter a full percentage point to 10.5 percent from the September figures.

While the report expects that rates will rise, it feels that mortgage activity will remain strong through the end of this year and the first half of 2006, actually raising the dollar amount of total mortgage originations. The refinance share of all mortgage applications is expected to decline to one third of lending volume in 2006 (it is currently running around 45 percent)

The report makes virtually no mention of the impact that Katrina may ultimately have on the housing market as people rebuild or relocate. This is probably because no one knows the directions or the actions the victims may take.

The November Freddie Mac report is expected on November 8.