The shutdown of Houston-area plants will sap U.S. economic momentum to the tune of $100 billion.
WASHINGTON — Between the shutdown of oil refineries and chemical plants, impaired roads and ports, and widespread damage to homes, businesses and vehicles, the economic toll from Hurricane Harvey is 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 $100 billion or more, most of that in damage to homes and commercial property.
That would be larger than the hit from Superstorm Sandy in 2012 but less than Katrina, which inflicted $175 billion in damage and lost economic activity.
Although the brunt of Harvey’s cost will be borne in southeast Texas, particularly the 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 dip as well. U.S. exports could see a slight drop from the temporary closure of one of the nation’s busiest ports.
Harvey is likely to sap some momentum from the U.S., 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 percent annual rate in the second quarter, and projections for the current quarter have been looking as good. But depending on the duration of impact, Harvey could shave 0.3 to 1.3 percentage points from third-quarter GDP growth, according to Macroeconomic Advisers, a 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 expect GDP to expand at about 2.5 percent in 2017, a somewhat faster pace than the average growth rate of around 2 percent in recent years.
And no one is expecting anything more than a blip on national employment from Harvey, and no effect 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 cleanup and reconstruction efforts.
It remains to be seen how long it will be before businesses and workers 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 percent of the U.S. total, IHS estimated. And more than 30 percent 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 storm, 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 500,000 people to seek 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.
“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.
“We’ve had very little business activity since last Friday. … We’ve lost a week’s worth of economic activity,” he said. That would translate to roughly $10 billion, if businesses and spending in Houston had come to a standstill.