The Gulf Coast can’t seem to catch a break.
After dumping trillions of gallons of water on Texas, the downgraded storm system is now making a second landfall in Louisiana. In all, the storm could cost well up to $160 billion, or the combined costs of Hurricanes Katrina and Sandy. According to USA Today:
“Moody’s Analytics estimates the storm will result in $30 billion to $40 billion in property damage and about $7 billion in lost economic output, as most restaurants, hotels, and retailers stay shuttered. About half the output should be recovered within a couple of months but it will take about two years to restore the damaged property, says Moody’s Chief Economist Mark Zandi.”
Some analysts expect storm costs to shave up to 0.8% off the U.S. GDP.
Others predict it could be far worse. In fact, with a projected gross output of $441 billion for 2017, that represents 2.4% of the nation’s economy.
"Business leaders and the Federal Reserve, major banks, insurance companies, etc. should begin to factor in the negative impact this catastrophe will have on business, corporate earnings and employment," said Dr. Joel Myers, founder and chairman of AccuWeather. "The disaster is just beginning in certain areas."
In fact, Market Watch says that such events instead contribute to a negative supply shock.
“Normal production and distribution channels are destroyed or disrupted. Producers have to find less-efficient (i.e. more expensive) ways to transport their goods. The net effect is lost output and income, and higher prices.”
Worse, at least 3.6 million barrels a day of refining capacity is now offline in Texas and Louisiana, or nearly 20% of the total U.S. capacity, noted Reuters. And while that triggered concerns of an oil supply crunch, and sky-high oil prices, that’s not happening. Instead, oil prices have pulled back, as demand from some of crude’s biggest customers, including refineries and drivers, has been crushed by the storm.
In fact, as the storm crippled Houston (the fourth largest city in America), there’s now less demand for gasoline for cars, diesel for trucks, and fuel for jets. Analysts estimate the storm may have removed 150,000 barrels a day in demand.
On Wall Street, the reaction seems muted. The market fell a couple hundred points in the days following the storm. However, by yesterday, it had fully recovered.
According to the New York Times:
In theory, a natural disaster could deliver such severe losses to insurers, banks or other financial institutions as to cause broader economic problems. There’s not much evidence of that happening because of Harvey for a few reasons. Home insurance policies generally do not cover flooding, which means the severe flood damage should have less impact on insurers’ payouts than you might expect. For many individuals, the financial losses from flooding can be devastating. But the possibility of the kinds of systemic problems that ripple across global financial markets appears remote. Insurers’ balance sheets are relatively strong after years without mega-catastrophes demanding particularly enormous payouts.
Any way you look at this situation, it’s a disaster for those living and working in the areas hit by Harvey. It will take years to totally rebuild. In the meantime, certain companies will benefit from the restoration efforts. Others may be so negatively impacted that they never recover.