Storm’s punch sends eco­nomic pain statewide

Austin American-Statesman - - FRONT PAGE - By Dan Zehr and Bob Sech­ler dzehr@statesman.com bsech­ler@statesman.com

The de­struc­tion in­flicted by Hur­ri­cane Har­vey struck at the very heart of the Texas economy, shut­ting down one of the state’s largest ship­ping and dis­tri­bu­tion hubs, lay­ing siege to the cap­i­tal of its en­ergy in­dus­try and pum­mel­ing some of its fa­vorite tourist desti­na­tions. While most of the eco­nomic dam­age will be tem­po­rary — and a mas­sive in­flux of in­sur­ance, fed­eral

and other fund­ing will flow in to re­build — vir­tu­ally ev­ery part of Texas will share at least some part of Har­vey’s ra­di­at­ing pain, economists say. Drillers in the Per­mian Basin will see the flow of oil back up as re­finer­ies sit flooded and idle. Farm­ers in the Pan­han­dle will won­der when key ex­port chan­nels will re­open for the crops they’re har­vest­ing now. State bean coun­ters in Austin will have less sales, fran­chise and sev­er­ance tax money to fund state bud­gets.

“The Hous­ton area is roughly a quar­ter of the Texas economy,” said Ray Per­ry­man, head of the Per­ry­man Group, an eco­nomic con­sult­ing firm.

“Add the other ar­eas af­fected by this, and we’re look­ing at 30-plus per­cent of the Texas economy af­fected di­rectly . ... It cuts a broad swath across ev­ery­thing that hap­pens in Texas.”

Say what you will about Austin lead­ing the state into a 21st cen­tury high-tech economy or about the Dal­las-Fort Worth Metro­plex driv­ing busi­ness and cul­ture around the state, coun­try and globe — Hous­ton re­mains the state’s largest eco­nomic en­gine, and Har­vey con­stricted vir­tu­ally all the ma­jor ar­ter­ies that bind it and Texas to­gether.

Within Hous­ton and the sur­round­ing storm-stricken ar­eas, the dis­as­ter will carry a heavy price in the short to mid­dle term. Cur­rent es­ti­mates of the eco­nomic hit to Hous­ton run any­where from $30 bil­lion to $50 bil­lion or more. While the im­pact on lo­cal prop­erty val­ues will vary in so large a metro area, ag­gre­gate val­ues could drop as much as 15 per­cent or more as dam­age is as­sessed and flood maps are re­drawn.

Be­yond just its di­rect path, Har­vey could be­come the most costly weather event in U.S. his­tory, with an eco­nomic im­pact of $160 bil­lion, ac­cord­ing to an anal­y­sis by Ac­cuWeather. That cost, about 0.8 per­cent of the U.S. gross do­mes­tic prod­uct, is sim­i­lar to the com­bined ef­fects of Hur­ri­canes Ka­t­rina and Sandy, the firm said.

Yet, all the sev­ered con­nec­tions be­tween Hous­ton and the out­side world will re­open as winds calm and wa­ters re­cede. The fun­da­men­tals of the on­go­ing ex­pan­sion of the Texas economy won’t suf­fer long-term dam­age, economists said, and even Hous­ton and the sur­round­ing ar­eas should reap sig­nif­i­cant longer-term eco­nomic gains as they re­cover.

Per­ry­man said the Hous­ton metro area will re­bound and thrive in the months and years to come, if only be­cause of its sheer size and its wealth of job and other eco­nomic op­por­tu­ni­ties. Even in re­cent days, many lo­cal shops and busi­nesses re­mained open in ar­eas not flooded. Lo­cal ho­tels were packed with dis­placed res­i­dents and out­siders com­ing in to lend a hand.

As time passes, the bil­lions of dol­lars ex­pected to fund the re­con­struc­tion and re­cov­ery of the re­gion’s in­fra­struc­ture, hous­ing, busi­nesses and la­bor force will prime the eco­nomic en­gine all the more. In many cases, Per­ry­man said, hur­ri­cane-stricken metro economies re­bound and sur­pass pre­vi­ous lev­els of ac­tiv­ity.

How­ever, he said, view­ing the re­sults from a strictly eco­nomic per­spec­tive skews the pic­ture.

“When we com­pute the gross do­mes­tic prod­uct, we count what we build but not what we tear down,” he said. “So if you re­build a city ex­actly like it was be­fore, you’d have a big in­crease in GDP and have the same city you had be­fore . ... From a so­cial ac­count­ing stand­point, you would have a much dif­fer­ent story.”

That so­cioe­co­nomic per­spec­tive might re­veal one of the few threats to the re­gion’s long-term eco­nomic re­bound — and by ex­ten­sion, the con­tin­ued ex­pan­sion of the Texas economy. Ma­jor metro ar­eas that sus­tain hur­ri­cane dam­age typ­i­cally bounce back stronger be­cause of the re­build­ing ef­forts, which tend to be an eco­nomic ac­cel­er­a­tor.

The one sig­nif­i­cant ex­cep­tion was New Or­leans after Hur­ri­cane Ka­t­rina, when al­most a third of the pop­u­la­tion per­ma­nently left the city.

Many of those dis­placed res­i­dents set­tled in Hous­ton. Will they want to stay after Har­vey? How about the nearly 60,000 net new res­i­dents who, ar­riv­ing from 2014 to 2016 made Hous­ton one of the coun­try’s fastest-grow­ing cities?

“That’s the dan­ger here,” said Robert Dye, chief econ­o­mist at Comer­ica Bank in Dal­las. “If every­one stays in Hous­ton and every­one de­cides this is a one-in-ahow­ever-many-year event ... Hous­ton will be fine and prob­a­bly in bet­ter shape five years down the road.”

Both Dye and Per­ry­man said they ex­pect Hous­ton to re­cover quickly. Ab­sent an un­ex­pected and large de­fec­tion from the city, the bulk of com­pa­nies and work­ers could be back to busi­ness as usual by early next year, Dye said.

Crops and crude

For the most part, he said, the rip­ple ef­fects on the Texas economy and bud­get should be even shorter-lived. But close down such a large por­tion of the state’s eco­nomic lifeblood, and the pain will spread. The state’s agri­cul­ture and en­ergy sec­tors might be among the most vul­ner­a­ble.

With the har­vest for some key crops in full swing, sus­tained de­lays at Hous­ton, Galve­ston and Cor­pus Christi ports could wipe out a year’s work. In 2016, about 13 per­cent of the value of U.S. ce­real ex­ports, such as wheat and rice, departed from ports in the Hous­ton-Galve­ston district, ac­cord­ing to the Cen­sus Bureau’s USA Trade On­line data.

Clos­ing down one of the na­tion’s largest ports, even tem­po­rar­ily, has much more wide­spread con­se­quences. Last year, those Hous­ton-area ports shipped $91.6 bil­lion worth of prod­ucts, 6.3 per­cent of the U.S. to­tal.

Hous­ton-area ports par­tic­u­larly rely on a huge vol­ume of pe­tro­leum and petro­chem­i­cal im­ports and ex­ports. Crude oil and re­lated prod­ucts ac­counted for a third of the to­tal value of goods that move in and out of the those ports.

As of mid­day Wed­nes­day, ship­ments of crude, dis­til­lates and petro­chem­i­cals — like vir­tu­ally ev­ery other prod­uct — re­mained at a stand­still, ac­cord­ing to a daily re­port from S&P Global Platts En­ergy. Re­finer­ies in the storm-stricken area had shut down or scaled back pro­duc­tion by as much as 4 mil­lion bar­rels per day, roughly 22 per­cent of the U.S. to­tal, the firm es­ti­mated.

That hit, while tem­po­rary, comes at a dif­fi­cult time for the state’s oil and gas com­pa­nies. While the sec­tor had gen­er­ally sta­bi­lized after a sharp drop in com­mod­ity prices, prices re­mained rel­a­tively low and most in­dus­try of­fi­cials had ex­pected drilling to slow later this year.

“What would the ef­fect of Hur­ri­cane Har­vey be on the Hous­ton economy if oil was at $100 a bar­rel and we were just drilling and ev­ery­thing was hap­pen­ing?” asked Dye. “We have an en­ergy in­dus­try run­ning on tighter mar­gins, busi­nesses are stressed al­ready, and now they’re un­for­tu­nately fac­ing one more layer of stress.”

The tourism sec­tor

There’s no good time for a hur­ri­cane, of course, but the tim­ing could’ve been worse for the coastal economies that rely on sum­mer’s in­flux of beach­go­ers and di­rectly em­ploy 170,000 work­ers in the tourism sec­tor, in­dus­try of­fi­cials said.

Har­vey ar­rived dur­ing a “shoul­der season” for Gulf Coast tourism, said Scott Joslove, pres­i­dent of the Texas Ho­tel and Lodg­ing As­so­ci­a­tion. While the La­bor Day week­end “sure can be big” for towns along the coast, he said, the hur­ri­cane “didn’t ruin spring break or the peak of the sum­mer season.”

Tourism is among the top in­dus­tries in Texas, and the re­gions in the storm’s path — in­clud­ing beach towns from Galve­ston to Port Aransas, as well as Hous­ton — con­sti­tute some of the big­gest draws in the state.

Joslove said it’s too early to tell the ex­tent of the dam­age on the coastal com­mu­ni­ties, in­fra­struc­ture and economies that rely so heav­ily on tourism. Many prop­er­ties in Rock­port and Port Aransas suf­fered se­vere dam­age, and re­ports for other ar­eas were still com­ing in. But early in­di­ca­tions sug­gested that most ho­tels in the area re­main stand­ing and will be func­tional once power, wa­ter and in­fra­struc­ture are re­stored, he said.

Still, the storm did cut off the tail end of the peak sum­mer season, said David Teel, pres­i­dent of the Texas Travel In­dus­try As­so­ci­a­tion, and it will im­pact the so-called “win­ter Texan ef­fect” — when peo­ple from cold-weather states and Canada es­sen­tially take up res­i­dence on the coast dur­ing win­ter months.

Those win­ter Tex­ans “re­ally be­come part of the lo­cal economy down there,” Teel said, and many of them might choose to come down de­spite the dam­age and might help with cleanup and re­cov­ery ef­forts.

“I’m op­ti­mistic we are go­ing to bounce back,” he said. “For as big as Har­vey is, what we’ll find out is that Texas has a big­ger heart than Har­vey.”

JOE RAEDLE / GETTY IM­AGES

An oil re­fin­ery in Cor­pus Christi is seen Fri­day, just be­fore the ar­rival of Hur­ri­cane Har­vey. Re­finer­ies in the path of the storm shut down or cut back daily pro­duc­tion by 4 mil­lion bar­rels, or 22 per­cent of the U.S. to­tal. As of Wed­nes­day, ship­ments of crude, dis­til­lates and petro­chem­i­cals from area ports re­mained at a stand­still.

DAVID J. PHILLIP / AS­SO­CI­ATED PRESS

Steve Reinitz helps re­move items dam­aged by flood­ing from Trop­i­cal Storm Har­vey out of his par­ents’ home in Hous­ton on Wed­nes­day. Har­vey could be­come the costli­est weather event in U.S. his­tory.

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