Between the shutdown of oil refineries and chemical plants, impaired roads and ports, and widespread damage to homes, businesses and cars, the economic toll from Hurricane Harvey is now being estimated as the second-costliest natural disaster in U.S. history, trailing only the devastation caused by Hurricane Katrina in 2005.
Some economic researchers, including the national forecasting firm Moody’s Analytics, are putting the price tag of Harvey at $81 billion to $108 billion or more, most of that in damage to homes and commercial property.
That would be larger than the hit from Hurricane Sandy in 2012 but less than Katrina, which inflicted $175 billion in damage and lost economic activity. By comparison, the economic loss from the Northridge earthquake in 1994 came to about $45 billion, in inflation-adjusted dollars, according to Moody’s.
Although the brunt of Harvey’s cost will be borne in southeast Texas, particularly the sprawling Houston area, the effects will be felt more broadly.
Motorists across the country can expect to pay more for gas, at least for a while, and consumer spending overall could fall a bit as well. U.S. exports could see a slight drop from the temporary closure of one of the nation’s busiest ports.
All in all, Harvey is likely to sap some momentum from the American economy, which went into the summer chugging along in its ninth year of expansion.
The nation’s gross domestic product, or economic output, grew at a solid 3% annual rate in the second quarter, and projections for the current quarter have been looking as good. But depending on the degree and duration of impact, Harvey could shave 0.3 to 1.3 percentage points from third-quarter gross domestic product growth, according to Macroeconomic Advisers, a major forecasting firm based in St. Louis.
Some of that storm-induced drop is likely to be recouped later in the year as construction and repairs get rolling, largely funded by government dollars.
Neither Macroeconomic Advisers nor other economists have made significant revisions to their growth forecasts for the full year after Harvey. Most still expect GDP to expand at about a 2.5% rate in 2017, a somewhat faster pace than the average, moderate growth rate of around 2% in recent years.
And no one is expecting anything more than a blip on national employment from Harvey, and no affect at all on the jobs report for August that is being released Friday.
“In the longer run, it’s going to be positive,” said Ben Herzon, a senior economist at Macroeconomic Advisers, referring to an expected ramp-up in economic activity resulting from clean-up and reconstruction efforts. “Going forward, rebuilding is going to swamp any near-term disruptions in the third quarter,” he said.
It remains to be seen how long it will be before businesses and workers can get back on their feet. The longer it takes, the bigger the blow to near-term economic growth, in lost wages, sales and consumer spending.
“The situation is not over — the rain continues to fall, and floodwaters continue to rise,” said a report by economists at IHS Market, noting that further damage to the region’s energy, transportation and port infrastructure would have broader ramifications for the national economy.
Greater Houston is the country’s largest metro exporter with $97.1 billion in shipments in 2015, or 6% of the U.S. total, IHS estimated. And more than 30% of the nation’s refining capacity lies in Harvey’s path.
Based on what’s been happening with wholesale gas prices since Harvey, the national average for unleaded gas will hit $2.60 per gallon compared with $2.47 before the storms, said Ryan Sweet of Moody’s.
“Prices could move even higher,” he said. While there is more cushion in supplies than when Katrina hit, he added, “damage to refineries is a serious risk and could cause gasoline inventories to fall more quickly.”
Harvey swept through a large swath of southeast Texas — at least 19 counties have been declared major disaster areas by the federal government. More than 32,000 people have been housed in shelters, and the Federal Emergency Management Agency is expecting nearly a half million people to seek some sort of disaster aid.
Moody’s estimated that as many as 700,000 vehicles and 400,000 homes were significantly damaged. Most homeowners did not have flood insurance, so their personal spending will be constrained.
“My street flooded four times, and each time it came up close to my house,” said Patrick Jankowski, an economist at the Greater Houston Partnership. He tracked the rainfall with a measuring device in his backyard: 57 inches of rain over five days. The city normally gets 49 inches in a year.
“We’ve had very little business activity since last Friday…. We’ve lost a week’s worth of economic activity,” Jankowski said. That would translate to roughly $10 billion, if businesses and spending in Houston had come to a complete standstill. Houston is the nation’s fourth-largest city with a metropolitan population of about 6.8 million, and it generates roughly $500 billion in economic output.
When Harvey struck, the Houston economy was making a comeback from a slump last year caused by depressed oil prices. While the city has long been the nation’s oil capital, in recent years its economy has diversified, thanks to a booming medical industry and low-tax, low-cost climate that has made Houston a magnet for residents and businesses.
The way Jankowski often gauged economic activity was to visit a parking lot in a retail complex with an Ikea store, and he would count the number of out-of-state license plates, many of them from California and New York.
In the wake of Harvey, Jankowski figures the migration into Houston and the surrounding region will pretty much come to a halt in the near term.
“There’s not much housing for people,” he said. “Now, unfortunately, most of the out-of-state plates will be construction vehicles.”
