Hur­ri­cane to cost tens of bil­lions, but a quick re­cov­ery is ex­pected

Miami Herald - - FRONT PAGE -

“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.

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