Hurricanes’ impact


How Will Harvey Impact the U.S. Economy?

By now, you’ve surely watched with sympathy and concern as hurricane Harvey along with Irma flooded America’s fourth largest city.  You may remember seeing similar footage when Hurricane Katrina roared through New Orleans, and when superstorm Sandy roared through the most populous areas of New Jersey and New York.  As you saw Houston sitting in six feet of water, you’re probably wondering what the economic impact will be of all this devastation, and how it compares to natural mega-disasters like Katrina and Sandy.

While we don’t yet know the true cost of Harvey or Irma, and probably won’t for months, experts believe two things:

1) The financial toll of Harvey will break all previous records, with estimates ranging from $80 billion (Enki Research) to $160 billion (AccuWeather); and

2) in the end, the storm will actually have minimal impact on the overall economy’s growth.

You can see in the accompanying graph that either estimate would make Harvey the costliest hurricane in U.S. history.   Our country is bracing ourselves as we learn Irma’s impact.  But where will the impact be felt?

CA - 2017-9-1 - Harvey's Impact (2)First, at the pump.  The American Automobile Association reports that the average cost of a gallon of regular unleaded gas jumped from $2.34 to $2.40 in a matter of days, due to shutdowns that have slowed the flow of gas from the epicenter of Texas’ oil refinery industry. (The Houston area processes nearly one-third of America’s crude oil.)  Interestingly, crude oil prices are falling due to lessened demand; because refinery companies are no longer buying oil on the spot markets while they rebuild and retool.


The Houston area also has a lot of facilities that use petroleum to manufacture a variety of chemicals for export—roughly 21% of the U.S. total.  Disruptions to chemicals-related exports could reduce GDP in the fourth quarter by as much as 0.20%.


We can also expect a brief spike in initial jobless claims—the weekly tally of people who file for unemployment benefits for the first time.  Economists note that there was a spike in initial claims in Louisiana after Hurricane Katrina, and in the Northeast after Hurricane Sandy.  If the past is any indication, this will be a VERY temporary phenomenon (see the jobless rate graph), because the cleanup in the aftermath, including a lot of repair and construction, will require a lot of temporary labor, reducing the local unemployment rate, for a few months, to near zero.



ca-2017-9-1-harveys-impact-unemployment.jpgMeanwhile, up to half a million flooded cars and trucks could be scrapped, according to an estimate by Cox Automotive.  Auto insurers like State Farm, Allstate, Progressive, Geico will deal with claims for several months.


Harvey taketh away, but it will also give back: the impact of devastation on the overall economy will be somewhat offset by the huge rebuilding effort’s impact on overall GDP.  However, the final tally, as mentioned, won’t be measurable until the rebuilding has been mostly completed—which won’t be anytime soon.




About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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