Goldman plays down hurricanes’ effect on U.S. growth
What the hurricanes taketh away, they will more than giveth back to U.S. economic growth, according to economists at Goldman Sachs Group Inc.
As hurricane Irma touched down in Florida, the firm had already adjusted its forecasts for gross domestic product growth amid a particularly intense U.S. storm season that also saw Texas battered by hurricane Harvey.
Goldman cut its estimate for third-quarter growth by 0.8 per centage point, but said it could drop by as much as one point. The next three quarters will get a boost from a recovery in consumption, inventories, housing and energy.
“Costly and broad-based natural disasters are associated with particularly large declines in economic activity, but also sharper subsequent rebounds,” the economists, led by Jan Hatzius, said in the Sept. 9 note to clients.
For now, Goldman sees thirdquarter growth coming in at two per cent. The slump will more than be made up by a cumulative one per centage-point gain in the fourth quarter and first half of next year.
The U.S. should enjoy 2.7 per cent growth in the final three months of this year, they estimate.
Meanwhile, oil advanced as the market shrugged off Irma’s effect on demand, with the Texas Gulf Coast repairing itself after Harvey.
Crude jumped 1.2 per cent in New York. Gulf Coast refiners hit by Harvey have managed to get most plants back on their feet in a region that processes about half the nation’s crude. Gasoline futures, meanwhile, declined amid concerns that demand would weaken as Irma, now a tropical storm, continues to roll north through Florida.
“From a technical basis, support held at US$47. That continues to be a critical level,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, in a telephone interview. “At this point, there is an expected hit to gasoline demand from hurricane Irma in Florida, but we are hearing that the infrastructure isn’t as bad off as feared.”
Recovery from Harvey remains a bigger concern for the oil market than Irma, according to Goldman Sachs. Fuel producers in Texas are still working to restore normal operation at some plants, including the nation’s largest refinery operated by Motiva Enterprises LLC. But others such as Citgo Petroleum Corp., Marathon Petroleum Corp. and Flint Hills Resources LLC have resumed crude processing.
The price move higher also “reflects a little more confidence that the refiners are recovering,” James Williams, president of London, Arkansas-based energy researcher WTRG Economics, said by telephone. Still, the oil market may continue to chop around as there is some lingering uncertainty as to how much crude is actually being processed by these refiners, he said.
West Texas Intermediate for October delivery rose 59 cents to settle at US$48.07 barrel on the New York Mercantile Exchange. Total volume traded was about five per cent above the 100-day average.