Hurricane economics say these data will show Harvey's fallout
(Bloomberg) -- Days of torrential downpours and widespread flooding along Texas’ Gulf Coast courtesy of Harvey will soon take on another formation -- several months of unsettled national economic data.
While the hit to U.S. growth from natural disasters is limited due to the sheer size of the American economy, major weather events have typically led to significant swings in monthly data on employment, manufacturing and car sales.
The following charts offer a glimpse of some of the data points that will probably experience some volatility in aftermath of Tropical Storm Harvey, which made landfall as a hurricane near Corpus Christi and brought the Houston metropolitan area to a standstill.
One of the first economic releases that will likely be impacted are applications for unemployment insurance. Expect to see a bump in jobless claims in Harvey’s wake. Looking back at past storms, the behavior of jobless claims is consistent: Initial and continuing claims jump as displaced workers apply for financial assistance and businesses struggle to regain their footing. This development may take a few weeks to show up in the data.
“Once they pop, they are going to sit up there a while,” said Omair Sharif, senior U.S. economist at Societe Generale in New York. Down the road, “payrolls are almost certainly going to get hit.”
The government’s survey of households, part of the monthly jobs report, is generally taken during the calendar week that contains the 12th day of the month. That’s also the reference period for the establishment portion of the employment figures. Harvey made landfall on Aug. 25 and just recently moved away from the Houston area.
While that gives relief efforts more than a week to work their magic before the government surveys for its September jobs report, it almost certainly won’t be enough time to counter the kind of damage and mass disruption that continues to unfold in flood-ravaged Houston. It’s worth noting that Hurricane Katrina, which led to widespread devastation in New Orleans, depressed payroll growth temporarily back in 2005.
Houston, however, is the nation’s fourth-largest city with 2.3 million people compared with about 450,000 in New Orleans before Katrina. Including Houston’s suburbs, the impact of the strongest storm to hit the U.S. since 2004 will be even larger. In the longer run, payrolls will probably get a boost as construction and utilities workers labor to right the region.
Inflation data also will probably reflect temporary storm related-effects, mostly due to soaring fuel costs. Gasoline reached a two-year high on Wednesday after Harvey forced a controlled shutdown of the nation’s largest refinery in Port Arthur, Texas, east of Houston.
“The shutdown of oil refineries and key transportation hubs in the Houston area will spill over to other regions via supply chain disruptions and higher gasoline prices,” Mickey Levy and Roiana Reid at Berenberg Capital Markets wrote in an Aug. 29 note. It all hinges on how long refining capacity will remain offline, which is still unclear.
Data on industrial production have also seen some bumpiness in periods around past major weather events. Slowdowns in output at the nation’s factories, mines and utilities have proved short-lived, however.
Flooded automobiles have been common in television footage of the disaster in Houston. That explains why motor vehicle sales could be lumpy for the period surrounding Harvey.
“Vehicle sales could be weak for a period and then will ramp up, because a lot of cars have been destroyed in the storm and will be replaced,” said Mark Zandi, chief economist at Moody’s Analytics Inc.
Despite these shifts and swings in monthly economic figures, the impact on economic growth is likely to be minimal. That’s because storms -- even those with damage estimates like Harvey in the tens of billions of dollars -- don’t fundamentally shift the productive capacity of an economy with gross domestic product currently near $19 trillion.
What’s more, there may be an economic silver lining to the storm. Goldman Sachs researchers say Harvey may persuade lawmakers to come to an agreement to avert a government shutdown, because they won’t want to hamper federal relief efforts. They might use disaster relief fund appropriation as a time to extend federal spending authority or raise the debt limit -- clearing an ominous cloud from the fiscal horizon.
“Recent events have lowered the odds of a government shutdown or a delayed debt ceiling hike but have also increased the number of possible scenarios,” Goldman economists wrote in an Aug. 29 note.
--With assistance from Patricia Laya