Hurricane Ian: Counting the costs
Hurricane Ian, the second major hurricane of the 2022 season and the first of the year to hit the continental U.S., made landfall Wednesday. After slamming into the CapeCoral-Fort Myers metro area in the afternoon as a Category 4 hurricane, the property damage and loss to economic output is expected to be substantial.
The overall cost will surely be boosted by the storm’s relatively slow and meandering pace and a trajectory that includes some of the most expensive housing markets in Florida, including the metro areas of Naples-ImmokaleeMarco Island, North Port-Sarasota-Bradenton, and The Villages.
We anticipate about $45 billion to $55 billion in damage and $7 billion to $10 billion in lost output in Florida alone.
These estimates are preliminary and will be revised as the storm progresses and we are able to take stock of the final impact.
Damages in the Carolinas will be substantially less but will amount to at least a few billion, and additional costs could easily reach the tens of billions before the storm dissipates. The final price tag will hinge on the extent of the flood damage across the region.
The extent of the damage yet to be wrought by storm surge remains to be seen.
Powerful winds pulled the water away from the Florida coast and out to sea as the storm made its way across Florida, and when the water returns it will be in large and destructive swells. Such a phenomena was also observed in 2017 during Hurricane Irma, which also carried a fairly hefty price tag with substantial damage to Northeast Florida.
So far Florida has already been slammed. More than 2.6 million customers were without power. While Ian has been downgraded to a tropical storm, it could regain strength now that it has headed out over the Atlantic. The storm was expected to make landfall again Friday afternoon, hitting near Savannah and Charleston. While the damage is likely to be less than in Florida, South Carolina in particular is at risk for significant flooding.
So far it looks like Hurricane Ian is on track to rank among the more costly natural disasters of recent years. That said, the damage would have been far worse if the brunt of the storm had hit Tampa or if Miami had been directly impacted.
The high population density along the storm’s path will also add to the disruption. Power outages are likely to last several days, and the wide swath will keep regional power crews working round the clock once the storm has passed.
Well before the storm hit, disruptions were already widespread across the Sunshine State, including the closing of major universities, airports, and Disney World and the delay of NASA’s Artemis 1 rocket launch.
Macro implications
There is considerable interest in how Hurricane Ian impacts U.S. GDP. The storm avoided the critical energy infrastructure in the Gulf of Mexico, including refineries and oil rigs. There is one liquefied natural gas terminal in Jacksonville FL.
The primary damage from natural disasters is done to productive capacity through the destruction of existing assets.
This destruction is accounted for in the National Income and Product Accounts under the Changes in Net Stock of Produced Assets table but is not included directly in the GDP calculation.
After the storm passes, rebuilding should provide a boost to economic activity in those affected regions in subsequent months. A ton of federal and insurance money will flow into the impacted areas, which will boost economic activity. This is an economic debate that nearly always surfaces after natural disasters.
Those with opposing views often mention the brokenwindow fallacy, which is based on the argument that destruction does not stimulate the economy. However, there is also an important difference between economic activity and economic welfare.
Although those affected by the storm are not better off now than prior to the storm, over time, economic welfare will improve and should be fully restored.
In fact, economies that have been hit by major natural disasters have generally been made whole, particularly given the federal and insurance money that flows into the areas. Rebuilding will play an important role in restoring economic welfare.