Hurricane Harvey has dealt a devastating blow to the Houston region, which was recently on track to account for 2.4% of the nation’s economy this year. The blowback for the US overall, however, is expected to be mild, more or less leaving the latest estimates for a pickup in economic activity for the third quarter intact, at least for now.
“The economic damage will be moderate, with disruptions to the heart of the nation’s refinery and petrochemical industries in August and September,” advises Robert Dye, chief economist at Comerica Bank.
Yet some analysts remain cautious, noting that it’s too early to know the storm’s full effect. “Each disaster is unique,” said the 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,” notes Jerry Nickelsburg.
Mark Vitner, senior economist at Wells Fargo, points out that household wealth in the Houston region will take a “huge hit” from the storm and the price tag won’t show in the GDP data.
The energy sector, which has a large economic footprint in Houston, will certainly suffer, with the economic consequences rippling out across the nation. “Beyond the shutdown of refining capacity and loss of oil production, the rest of economic losses from the storm will likely total more than $24 billion,” says Joe Brusuelas, chief economist at the consulting firm RSM. “We think that once we have a chance to look at the loss of structures and property, we’ll have total losses of greater than $45 billion.” Because of the storm he expects that US GDP growth will be lower in Q3 than previously expected, but recovery projects will boost economic activity later on.
Meantime, the latest GDP projections for Q3 still point to growth that will hold steady and perhaps accelerate vs. Q2. Wall Street analysts, for example, are expecting that the US economy will increase 2.9% (seasonally adjusted annual rate) in the current quarter, based on CNBC’s median survey of economists on Aug. 28. That’s only slightly faster than Q2’s 2.6% advance.
The Atlanta Fed’s GDPNow model, however, is still looking for a stronger acceleration. The bank’s currently forecasting that Q3 output will climb to 3.4% (as of Aug. 25).
Some projections aren’t so optimistic. The New York Fed’s Aug. 25 “nowcast”, for example, reflects a softer rise of 1.9% for the current quarter – and that estimate was published before Harvey crippled the Houston area, the country’s fourth-largest metropolitan region.
The question is how or if the Q3 GDP predictions will change in the days ahead, once a deeper measure of Hurricane Harvey’s bite is factored into the mix. Given the extent of the damage, it’s safe to assume that the near-term impact on US economic activity will be negative in some degree, starting with industrial production.
“The damage will likely be much higher than most recent hurricanes have been,” according to Adam Kamins, senior economist at Moody’s Analytics. That’s due to “very high levels of housing density where some of the most severe flooding is taking place. Because of that you have very high expected property and vehicle damage.”