Economy to take hit from hurricanes
But damaged areas will need repairs, replacement goods
WASHINGTON — With businesses disrupted, fuel and chemical refineries out of commission and consumers struggling to restore their lives, Hurricanes Harvey and Irma will likely pack a tough double-whammy for the U.S. economy.
Nearly one-fifth of the nation’s oil refining capacity has been shut down because of Harvey, and fuel production has dropped sharply as a result, according to Bank of America Merrill Lynch. Consumers will also spend less in the immediate aftermath of the storms. Even those ready to make purchases will face closed storefronts and dark restaurants.
Irma will cause tourists to delay — and in many cases never take — trips to Florida’s beaches or Disney World. Chemical refineries have also been closed, reducing the production of plastics.
Damage estimates from the two storms are still early, particularly for Irma. Hurricane Harvey will likely cost up to $108 billion, according to Bank of America Merrill Lynch, which would make it the second-most-expensive hurricane after Katrina.
Mark Zandi, chief economist for Moody’s Analytics, estimates Irma will cause $64 billion to $92 billion in damage.
While the economic toll pales beside the human costs, analysts estimate that the nation’s annualized growth rate will be one-half to one full percentage point slower in the July-September quarter.
But repair work, reconstruction and purchases of replacement cars and other goods should provide an offsetting boost later this year and in early 2018.
“Construction activity will rocket in the affected areas,” predicted Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Households’ spending on building materials, furniture, appliances and vehicles will all be much higher than otherwise would have been the case.”
Catastrophic natural disasters often don’t depress the U.S. economy in the long run. The destruction of property reduces the nation’s total wealth. But all the rebuilding and restoration work tends to stimulate economic growth in the following months.
After Hurricane Katrina bashed New Orleans in 2005, it took seven months for homebuilding permits in the city to return to their pre-hurricane levels, according to Goldman Sachs.
Economists estimate that Harvey and Irma will slice growth in the JulySeptember quarter by 0.8 percentage point to an annual rate of 2 percent. But they forecast a rebound, with annualized economic activity 0.4 percentage point higher in the October-December quarter.