Hurricane to cost tens of billions, but a quick recovery is expected
“It may take weeks for refineries to repair and replace damaged equipment,” Dye said. “Port facilities have also been damaged, and this may result in an export bottleneck.”
Indeed, with the Port of Houston and Corpus Christi’s smaller port directly in the storm’s path, a key logistics hub for the south-central United States is set to be out of commission for days, if not weeks.
Nearly half of the exports from Houston consist of resins, plastics, chemicals and minerals, reflecting the concentration of the nation’s petrochemical industry on the Gulf Coast. Major imports flowing through the port include food, construction materials, machinery and retail consumer goods.
Ellen Zentner, chief U.S. economist at Morgan Stanley, said that although Hurricane Harvey’s effect on national gross domestic product in the third quarter might be fairly neutral, “the lagged effects of rebuilding homes and replacing motor vehicles can lost longer,” providing a lift to gross domestic product in the fourth quarter and beyond.
On the other hand, an extended rise in gasoline prices could have a more immediate effect. Each 10-cent rise in the price of gasoline is equivalent to a $10 billion tax on consumers, Zentner said, so “should higher prices be sustained, it would rob other categories of spending as dollars are diverted to filling tanks.”
Similarly, a lengthy outage at petrochemical facilities that produce the raw materials for plastic, like polyethylene, could also raise prices for a range of goods, including toys, garbage bags and PVC pipe.
“It’s definitely going to cause some dislocations in the wholesale market for plastics components,” said Chris Lafakis, director at Moody’s Analytics. “This is a huge hub for petrochemicals.”
The economic effect of the storm will not be clear with any degree of accuracy for a while. But given Houston’s commercial importance — and its perch along a well-trod hurricane zone — economists and others have long taken it for granted that an epic storm would hit the region eventually, so they have a head start on the numbers.
About two years ago, Ray Perryman, the head of an economic analysis firm, looked at the hypothetical economic damage that would be wrought if storms of various sizes and magnitudes hit coastal Texas. The estimates ranged from around $11 billion to $80 billion — and the earliest estimates suggest this disaster will be on the upper end of that range.
Moody’s Analytics estimates that the damage will be $40 billion to $50 billion. The first and smaller set of losses — less than $10 billion — will come from things that do not happen: homes not purchased, sales not closed, gas not bought or shipped. The second and larger set of losses, totaling tens of billions, will come from property damage.
“Things are too preliminary to know at this point, but I would expect Harvey to be one of the two most costly in history when all is said and done,” said Perryman, chief executive of the Perryman Group of Waco, Texas.
The damage, while serious and expensive, is likely to be a fraction of the $130 billion in damage caused by Hurricane Katrina. Katrina was one of the worst disasters in U.S. his- tory, and the final toll, human and economic, was staggering. When the levees broke, flooding was sudden and immediate and eventually killed close to 2,000 people.
The flooding from Harvey appears to be spread over a bigger area that had more time to mobilize, suggesting that the number of deaths will be far lower, Perryman said. Hurricane Katrina appeared to have had a greater effect on oil production and refining.
The Gulf Coast of Texas is also more prosperous and populous than New Orleans. And despite wobbly oil prices, local job growth has accelerated, along with continued improvement in home sales and construction. The number of Texas oil rigs has been rising over the past year, giving a big lift to exploration and chemical manufacturing jobs.
So far, Harvey seems to have damaged things that can be replenished or replaced relatively quickly. Houston has huge amounts of economic assets that appear to be largely undamaged and are unlikely to be offline for much time.
Moreover, factories and refineries are rarely running at full capacity, and as they come back online, they can ramp up production to meet the backlogs that accrue. “Businesses have stockpiles and the ability to catch up,” said Christopher Thornberg, founding partner of Beacon Economics, a consulting firm.
As the floodwaters drain away and Texas shifts to cleanup mode, followed by a mammoth effort to replace what was lost, the daily modes of commerce will shift but not stop. Disruptions, displacement and property damage are quickly followed by federal aid and insurance checks.