Hurricane to Cost Tens of Billions, but a Quick Recovery Is Expected (courtesy of http://www.nytimes.com)
https://nyti.ms/2waUd25
The brutal storm pummeling the Houston area is likely to rank as one of the nation’s costliest natural disasters, with tens of billions in lost economic activity and property damage across a region crucial to the energy, chemical and shipping industries.
But economists say the region is likely to recover quickly and may even experience a bump in growth from rebuilding.
The Houston metropolitan area, the nation’s fifth largest by population, accounts for about 3 percent of the nation’s gross domestic product.
The area has a large and growing population and attracts continuous investment in oil-related manufacturing. It is also an important cog in global trade. Texas accounts for about half of petroleum and gas exports, along with about a fifth of chemical exports.
“The economic damage will be moderate, with disruptions to the heart of the nation’s refinery and petrochemical industries in August and September,” said Robert Dye, chief economist at Comerica Bank.
Texas is often thought of as a center of oil production, but the Houston area and the nearby Gulf Coast is where much of that black gold is turned into refined products like gasoline, diesel fuel, heating oil, and other distillates.
Mr. Dye said the Texas Gulf coast was home to about 30 percent of the nation’s refining capacity, with about half of that now shuttered by the storm.
As a result, wholesale prices for gasoline jumped 6 cents to $1.73 a gallon in trading Monday on the benchmark contract that settles next month. The AAA motor club said gasoline was selling for $2.37 a gallon on average across the country, 4 cents more than a week ago.
On the other hand, crude oil prices fell as traders anticipated that demand would fall, with fewer refineries open and able to take delivery of the crude.
GRAPHIC
Maps: Tracking Harvey’s Destructive Path Through Texas and Louisiana
Maps and animated satellite imagery show the scale and reach of the storm.
“It may take weeks for refineries to repair and replace damaged equipment,” Mr. Dye said. “Port facilities have also been damaged, and this may result in an export bottleneck.”
Indeed, with the Port of Houston and Corpus Christi’s smaller port directly in the storm’s path, a key logistics hub for the south-central United States is set to be out of commission for days, if not weeks.
Nearly half of the exports from Houston consist of resins, plastics, chemicals and minerals, reflecting the concentration of the nation’s petrochemical industry on the Gulf Coast. Major imports flowing through the port include food, construction materials, machinery and retail consumer goods.
Ellen Zentner, chief United States economist at Morgan Stanley, said that although Hurricane Harvey’s impact on national gross domestic product in the third quarter might be fairly neutral, “the lagged effects of rebuilding homes and replacing motor vehicles can lost longer,” providing a lift to gross domestic product in the fourth quarter and beyond.
On the other hand, an extended rise in gasoline prices could have a more immediate effect. Each 10-cent rise in the price of gasoline is equivalent to a $10 billion tax on consumers, Ms. Zentner said, so “should higher prices be sustained, it would rob other categories of spending as dollars are diverted to filling tanks.”
Similarly, a lengthy outage at petrochemical facilities that produce the raw materials for plastic, like polyethylene, could also raise prices for a range of goods, including toys, garbage bags and PVC pipe.
“It’s definitely going to cause some dislocations in the wholesale market for plastics components,” said Chris Lafakis, director at Moody’s Analytics. “This is a huge hub for petrochemicals.”
The economic impact of the storm will not be clear with any degree of accuracy for a while. But given Houston’s commercial importance — and its perch along a well-trod hurricane zone — economists and others have long taken it for granted that an epic storm would hit the region eventually, so have a head start on the numbers.
About two years ago, Ray Perryman, the head of an economic analysis firm, looked at the hypothetical economic damage that would be wrought if storms of various sizes and magnitudes hit coastal Texas. The estimates ranged from around $11 billion to $80 billion — and the earliest estimates suggest this disaster will be on the upper end of that range.
Moody’s Analytics estimates that the damage will be $40 billion to $50 billion. The first and smaller set of losses — less than $10 billion — will come from things that do not happen: homes not purchased, sales not closed, gas not bought or shipped. The second and larger set of losses, totaling tens of billions, will come from property damage.
“Things are too preliminary to know at this point, but I would expect Harvey to be one of the two most costly in history when all is said and done,” said Mr. Perryman, chief executive of the Perryman Group of Waco, Tex.
The damage, while serious and expensive, is likely to be a fraction of the $130 billion in damage caused by Hurricane Katrina. Katrina was one of the worst disasters in American history, and the final toll, human and economic, was staggering. When the levees broke, flooding was sudden and immediate and eventually killed close to 2,000 people.
The flooding from Harvey appears to be spread over a bigger area that had more time to mobilize, suggesting that the number of deaths will be far lower, Mr. Perryman said. Hurricane Katrina appeared to have had a greater impact on oil production and refining.
The Gulf Coast of Texas is also more prosperous and populous than New Orleans. And despite wobbly oil prices, local job growth has accelerated, along with continued improvement in home sales and construction. The number of Texas oil rigs has been rising over the past year, giving a big lift to exploration and chemical manufacturing jobs.
So far, the storm seems to have damaged things that can be replenished or replaced relatively quickly. Houston has huge amounts of economic assets that appear to be largely undamaged and are unlikely to be offline for much time.
Moreover, factories and refineries are rarely running at full capacity, and as they come back online, they can ramp up production to meet the backlogs that accrue. “Businesses have stockpiles and the ability to catch up,” said Christopher Thornberg, founding partner of Beacon Economics, a consulting firm.
As the floodwaters drain away and Texas shifts to clean-up mode, followed by a mammoth effort to replace what was lost, the daily modes of commerce will shift but not stop. Disruptions, displacement and property damage are quickly followed by federal aid and insurance checks.
“This is going to be disruptive, but the Houston economy will overcome it very quickly, just like other regions,” said Mark Zandi, chief economist at Moody’s Analytics.
In fact, when natural disasters do show up in economic data, it is usually as a small growth bump a few months after the storm, when rebuilding accelerates and insurance checks are cut.
An earlier version of this article incorrectly rendered the surname of a spokeswoman for the Insurance Information Institute. She is Loretta Worters, not Worter.