Harvey hits Americans’ wallets
Fuel costs rise as Texas refinery output falls. It’s too early to tell full economic impact.
Days of torrential rains and flooding in southeast Texas have brought the country’s fourth-largest city to a standstill, but economists say it’s still too soon to tell how much of a toll Tropical Storm Harvey will take on the economies of the Gulf Coast and the nation.
Even more rain has been forecast for the area, meaning damage estimates are still preliminary. It’s even difficult to use previous natural disasters, such as Hurricane Katrina and Hurricane Sandy, as measuring sticks because the regions have different economic engines, economists said.
Houston’s lifeblood is as the nation’s oil and gas hub.
“Each disaster is unique,” said Jerry Nickelsburg, director of the UCLA Anderson Forecast. “The economic impacts depend on how extensive the damage is to the economic activity in the city. What will be important is what resources will be available and what will be brought to bear.”
Some of the costs could be offset by insurance payouts and federal emergency resources. President Trump said Monday that Congress would move quickly to approve long-term funding for the recovery.
One immediate effect the rest of the nation could see is slightly higher prices at the pump.
As of Monday, Texas’ refining capacity was down nearly 2.2 million barrels per day because of the storm, according to S&P Global Platts.
Major ports in Corpus Christi and Houston were closed to vessel traffic, which was expected to delay imports and exports of crude and refined products, S&P Global Platts said.
The Port of Los Angeles and the Port of Long Beach said they did not expect any interruptions in service due to the tropical storm.
Refiners had not reported any damage, according to S&P Global Platts.
States along the Gulf Coast and all the way up to New Jersey are affected because they are supplied by the gulf refineries, though the heaviest effect in terms of price jumps has been in Gulf Coast states, said Tom Kloza, global head of energy analysis for Oil Price Information Service.
California’s gas prices have been trending upward for the last few weeks, largely a result of demand in the run-up to last week’s eclipse, but average prices could continue to increase 5 to 15 cents, said Patrick DeHaan, senior petroleum analyst at GasBuddy.
Though little of California’s special blend of gasoline is produced in the Gulf Coast region, major events can lead to a “bleed-over” in prices, he said.
“When gas prices go up due to a hurricane, it usually affects every region,” DeHaan said. “When it’s a hurricane in the Gulf of Mexico, this is the nation’s largest refining hub, so it’s a significant deal.”
Economists said it would be difficult to predict the storm’s exact effect on the U.S. economy. However, there was a “good chance” of a “slight but measurable impact” on the U.S. gross domestic product for at least this quarter, said Robert Kleinhenz, an economist at Beacon Economics and the UC Riverside School of Business.
In 2015, Houston’s real GDP was $471 billion, measured in 2009 dollars, while the U.S. real GDP for that same year was $14.5 trillion, Kleinhenz said.
“There will be some type of measurable impact, but I don’t think it will be huge,” he said.
“The real wild card right now, in my opinion, is how long will the metro area basically be stopped in its tracks by Harvey,” Kleinhenz said. “Then you start to figure out how the metropolitan area is going to recoup and rebound, and it’s definitely going to take some time.”
The GDP may rise in the fourth quarter from rebuilding and recovery efforts, though economists warned that this does not necessarily mean good news for individuals.
“The GDP captures an important measure, but I don’t think that sufficiently describes the extent of the damage we’ll feel out of this,” said Nick Vyas, executive director for the Center for Global Supply Chain Management at the USC Marshall School of Business. “This could ... have a pretty big impact on personal wealth, personal assets.”
Japan’s GDP dropped after the country faced the twin difficulties of a high unemployment rate and the 2011 earthquake in Sendai, but later bounced back after the country mobilized resources to rebuild. But recovery efforts don’t necessarily tell the whole story.
“We tend to measure people better off if GDP is growing faster, but in these cases, people are worse off,” said Nickelsburg of UCLA. “It’s rebuilding homes that were destroyed. Your well-being is diminished.”