Published On: Sun, Sep 10th, 2017

Here’s How Hurricane Harvey will Affect the U.S. Economy, Let’s Not Even Get Started on Irma

Hurricane Harvey has already raged through Houston and we can’t seem to see the end of the footage on the devastation that it left in its path. While the U.S. continues to battle with effects of hurricane Harvey in Houston, Florida is getting ready to face a similar (probably worse) fate as Hurricane Irma continue to make its ways from the Caribbean to U.S. cities on the southeast coast. Irma has already caused some disruptions in air and sea travel across the Caribbean.

The economic toll of Harvey in the local Houston economy is running into hundreds of millions of dollars and companies are already finding ways to provide their staff with help and time needed to get their lives back on track and return to work. This piece seeks to provide some insight into how the effect of Hurricane Harvey might actually ripple through the U.S. economy.

Hurricane Harvey photo/NASA

Economists are finding it hard to collate factual and objective economic data

One of the biggest economic effects of Hurricane Harvey is that economists will find it hard to collate and measure economic data.  To start with, the jobless claim data, which shows the number of Americans who filed claims for unemployment checks jumped last week. Jobless claims climbed up by a massive 62,000 to 298,000 in the week ending September 2 to beat the consensus economist estimates of 241,000. The data is disheartening because jobless claims have not had such a huge jump since Superstorm Sandy messed up the economy in November 2012.

However, some economists believe that Hurricane Harvey could bump of the level of uncertainties in the economic landscape. For one, economists will find it somewhat hard to deduce if the increase in jobless claims was solely due to Hurricane Harvey or some other underlying weakness in economic fundamentals. Conversely, when growth is reported, investors will find it hard to know if the growth was due to economic fundamentals or rebuilding efforts in Houston.

Priestly Farmer, an analyst at Weiss Finance observes that “Harvey has causes significant job losses, at least temporarily; however, the full economic toll of Harvey’s destruction won’t show up in data until the next couple of weeks.” J.P. Morgan analyst, Daniel Silver also confirms the sentiment in saying that “It looks clear that Harvey impacted the claims data and disrupted the labor market…But it still remains unclear exactly how large the disruptions will be and how long they will last.”

Harvey is set to trigger a slight uptrend in inflation

Economists are also worried that Harvey will trigger an increase in inflationary trend in the U.S. To begin with, Harvey successfully disrupted the operations of oil refineries in the Houston area thereby leading to a shortage of supplies. The shortage is oil output in the Houston area has caused the national average gas price to Jump from $2.35 per gallon last month to $2.66 this month. Energy experts expect gas prices to continue rising before leveling up around $2.75 per gallon.

Interestingly, an uptrend in gas prices will have a material effect on consumer spending as consumer have less cash left over. Analysts at Moody’s note that increases in gasoline spending caused consumer spending to drop by as much as $1 billion in the last one year. Hence, we can expect a more significant drop in consumer spending as the effects of Harvey and Irma starts becoming more pronounced.

Author: Randall Sullivan

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