US economy dodges harsher hit after storm
Hurricane Ian’s inflation impact manageable
WASHINGTON: Hurricane Ian has left a path of destruction behind, destroying countless homes, ruining citrus crops and risking fragile supply chains, but the storm’s skirting of a key US fertiliser-production area in Florida means the broader US economy is spared from the worst.
Ian hit the coast of Fort Myers in the country’s third-largest state just shy of the most-powerful Category 5 level on Wednesday and made a second landfall in South Carolina Friday.
In addition to the human tragedy, the storm is set to be one of the top-10 costliest storms in the United States, resulting in about Us$70bil to Us$120bil (Rm325bil to Rm556.4bil) in economic damage.
The impact is broad in Florida, including insured and uninsured residences, office buildings, infrastructure and a hit on the key tourism industry.
The closure of southeastern distribution channels for products ranging from autos to retail goods may have a domino effect on the rest of the country.
But a more lasting hit to inflation was likely avoided as the storm spared a critical production centre for fertiliser used by farmers in the US and around the world.
“The storm is devastating for some of the counties in Florida, but the macroeconomic impact is fairly minor,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics.
He forecasts the resulting decline in economic output – including lower consumer spending and paused business activity – may shave a few tenths of one percentage point off third-quarter economic growth.
Alongside the devastation in some Florida counties, Ian has exposed the growing risk of climate disasters and the scale of havoc they can wreak on the economy.
Scientists warn that storms are increasing in frequency and severity as global temperatures rise.
In the US, that leaves coasts at particularly high risk of more flooding, property damage, and unemployment – in addition to life-threatening conditions.
Natural disasters cost Us$280bil (RM1.3 trillion) globally last year, according to insurer Munich Re, with damage in the US accounting for about half that value.
Much of it wasn’t insured, leaving the tab to consumers, governments and businesses.
Total insured damages from Hurricane Ian could be as high as Us$120bil (Rm556.4bil), according to Accuweather, whose estimates tend to be higher than other groups.
Research firm Enki Holdings LLC boosted its estimated costs to about Us$71bil (Rm329.2bil) – including lost economic output from tourism and damaged infrastructure and homes – after the storm strengthened towards South Carolina on Friday.
Other estimates ranged from Us$40bil to Us$55bil (Rm185.4bil to Rm255bil).
The economic impact filters through damage to properties, crops and transportation infrastructure including airports and roads.
After imports were increasingly diverted from clogged West Coast ports during the pandemic, Southeastern hubs including Jacksonville, Florida, and Charleston, South Carolina, now handle more diversified cargo, highlighting how Ian could eventually cause supply disruptions across industries.
Trucking rates are also likely to increase in coming months after falling this year, as tractor-trailers and flatbed trucks redeploy to hard-hit parts of Florida with loads of rebuilding materials, tarps, water and other supplies, said Robert Weist, a vice-president of transportation at Crowley Maritime Corp in Jacksonville.
“It’s going to tighten up,” said Weist, whose company employs 7,000 people and operates its own trucks, vessels and shipping terminals.
Labour markets usually suffer a blow after natural disasters, with thousands of people displaced.
When Hurricane Harvey, another Category 4 storm, hit Texas in 2017, unemployment claims in the state skyrocketed by more than
four times that year’s average. Damaged oranges in Florida have farmers preparing for major losses in the state that produces more than 70% of the country’s citrus, with orange juice futures skyrocketing in an industry already facing price crunches.
When it comes to property, more than 7.2 million residences are at a medium-to-high flash-flood risk from the Category 4 storm, according to Corelogic, with total potential reconstruction costs of about $1.6 trillion (RM7.4 trillion).
While local damages mount, the national economy likely avoided the worst-case scenario.
Florida is a major producer of phosphate fertiliser, including plants owned by Mosaic Co, which produces about half the country’s supply.
A major hit to these facilities would have led to a jump in fertiliser prices and agriculture costs that would have eventually fed through to food prices for consumers.
Ian’s path skirted the area and Mosaic’s early assessments show storm water was well contained.
“We averted disaster to the fertiliser industry with the way the storm tracked,” said Alexis Maxwell, a Bloomberg Intelligence analyst.
Spot prices for Florida fertiliser declined in the week leading up to the hurricane’s landing.
Farmers usually buy phosphate fertiliser in November, applying the nutrients to prepare for future planting after they’ve pulled corn and soybeans out of the ground.
As of Saturday, ports had reopened, including in Jacksonville, Florida’s biggest container port and a main trade gateway for autos, and Charleston.
Distribution-centre operators in parts of the Southeast felt fortunate that Hurricane Ian shifted northward. George Powers, who operates warehouses in Savannah and Charleston, saw little setback.
“We didn’t have any damage and were back up and running today,” Powers, who’s chief executive of Tradeport Logistics, said on Saturday.