The Hurricane’s Economic Blast
Harvey and Irma — two names that have frequently been on the news lately. When one thinks of these two hurricanes, what comes to mind is the devastation caused by these storms, the overturned cars in the streets, the buildings that have collapsed, and the people that have been injured or killed. Was this the effect of climate change or is the Earth just following its regular course of action? Scientists continue to debate this and news coverage on the disasters are nowhere near complete.
Yet, what comes about afterwards? The immediate social effect of the hurricane is known everywhere and it is the first aspect of the event that the news covers. If we look at the economic side, this presents many issues that will impact the economy of the United States and even other countries, both in the short run and in the long run.
First, Hurricane Harvey left many jobless, reporting up to 62,000 with the bulk being undoubtedly from Texas. Forecasters from The Wall Street Journal have predicted that in the third quarter of this year, Hurricane Harvey will reduce jobs by 27,000 per month and reduce the growth rate of the American GDP by 0.3%. In addition to this loss of jobs, the damages caused by the hurricane have been estimated to cost up to over $100 billion, whilst estimates of the damages from Hurricane Irma have yet to be determined.
One of the biggest changes that has been noted that came about after Hurricane Harvey hit has been a rise in gas prices across Canada and the United States. Prior to the Labour Day long weekend, the Canadian average gasoline price had risen above $1.16 per litre. Later, gas prices soared up eight to nine cents per litre since then. This has been due to reports of shortage and extensive flooding in Texas and other states lining the US Gulf Coast. At least two major pipelines to New York and Chicago have been shut down due to the damage caused by Harvey. In the US, the national price of gasoline hit $2.67 a gallon from $2.35 a month ago. When the gas price surges, consumer disposable income decreases and thus also decreases aggregate spending by the consumer — impacting the economy on a whole.
While Irma continues it’s path to Florida, estimates of $1.2 billion dollars worth of crops are threatened, potentially leaving Americans paying more for their groceries in these next few weeks. The inflationary prices may be countered by slow growth, so this change is expected to be a short-term impact.
A major impact lies in Houston as insurance companies will only require $10 billion to $20 billion to help fix damages, as many Houston homeowners were uninsured. This presents a good scenario for the insurance companies, but not these homeowners. Yet, comparatively in Florida, most of the residents are insured and insurers would take a bigger hit as stock markets have gone down lately as well.
Some sectors that will go down are the tourism and airline industries, especially in Florida where tourism is a huge contributor to their state economy. Other sectors, such as the auto, home and hardware will be gaining as there will be a huge need to replace the industrial damages caused by the hurricanes. The losses in overall economic production can be countered or almost improved with the rise in production to fix the damages caused by the hurricanes.
It is clear that the passing of these hurricanes have caused widespread panic among the people living in the Southern United States, and by the look of the economic impact, their panic is justified. Even though officials are currently making estimates as to the extent of the damage caused by these disasters, quantitative values are still at its best guess right now. Whether these will cause long-term changes to arise, or stay impactful in the short-term, only time will tell.
