Today, Hurricane Harvey continued to slowly move towards southwest Louisiana and through Houston, as the confirmed death toll rose to 30 amidst a record-setting rainfall of around 52 inches. Harvey, which is now being called by some as the “Storm of the Decade”, has left behind billions of dollars in damages after initially being overlooked. Original estimates from insurance companies predicted $3 billion in damages. After the storm hit land, JP Morgan estimated the insurance industry could lose between $10 and $20 billion due to damages. U.S. Enki Holdings, a consultant that calculates the risks and costs of various disasters now say Harvey damages are at least $30 billion.
What does this spell out for the economy in Texas, and how much does the Texas economy affect the country altogether? The answer is not as clear as it seems. Most economists are predicting a negative impact on the United States GDP, yet some say it could be positive.
Predictors of a positive impact say that the rebuilding of over $30 billion worth of damages could provide a boost to the economy as spending increases. The counter argument says that this spending will be offset by the decrease in exports from the Houston area. It may seem as if these economists are overstating the role of Houston in the grand scheme of United States GDP, but when broken down by industry, it becomes clear that Houston plays perhaps an unsung role in the economy.
The shipping industry is one of those being affected. Six of the thirteen busiest water ports in the US are in Texas, with the second largest being Houston. This port, along with the sixth-busiest port, The Port of Corpus Christi, remain closed during the storm. Corpus Christi moves around $100 million worth of goods daily. These ports will remain closed until being cleared by the US Coast Guard, and shipments to the East Coast have already been affected.
Another industry that will negatively impact GDP is agriculture. Texas is the top state in the country in beef production, and many ranches have already been ruined as floodwaters are soaking pastures. In addition, cattle are being stranded and it is estimated that the 54 Texas counties in the state’s disaster zone contain more than 1.2 million beef cows.
Another major disruption lies within the chemicals industry. Harvey has already disrupted chemical production in Texas, with a third of US production being affected already. Thirty-seven percent of chlorine has been disrupted, and forty percent of ethylene has been affected. Notable producers such as Exxon Mobil and Occidental Chemical Corp shut down their chemical plants, and prices could rise in the coming weeks.
Perhaps the largest negative impact due to the tropical storm is on the oil and gas industry. Nearly one third of the US petroleum refining industry is on the Texas coast, and at least 10 refineries are closed as production of gasoline, diesel, jet fuel, and other various fuels are already affected. This impact has been felt immediately, as the closures have driven gasoline prices to a two-year nationwide high.
With all these industries being negatively affected nationwide, Houston’s unsung role in the US economy emerges. Despite the undeniable negative impact on Texas, the US economy could still improve as a result.
Prior to Harvey, Houston was one of the country’s top homebuilding markets, as more than 27,000 homes were being built at midyear 2017. An estimated 400,000 homes with US mortgages were destroyed by the storm. Now, construction companies across Texas could face a shortage of materials and labor.
Now, Houston must shift its focus to rebuilding, keeping in mind the damages possible from superstorms such as Harvey. Insurance companies treat storms like Harvey as rare occurrences, when in reality there have been three instances in the last 16 years of similar flooding, albeit not quite as bad. Hurricane Ike brought around $30 billion worth of damages in 2008 (adjusted for inflation). Hurricane Allison in 2001 and tropical storms in 2013 also caused billions of damages.
Hopefully, construction companies will be able to safely assess the damage in the coming weeks, and prepare to rebuild homes with proper protection. Hurricane Irene brought $15 billion of damages to the New Jersey coast in 2011, but it wasn’t until Hurricane Sandy caused an additional $70 billion the following summer that people realized homes and buildings need to be fixed properly, with most residents opting to raise their shore homes.
Looking towards the future, I hope to see a similar approach taken in Houston and around the Texas shoreline, and while raising their homes like Jersey residents did is probably not necessary, flood protection should still be a top priority in the coming weeks. The economic impact of Harvey will take months to accurately calculate as US Citizens, especially Texans, look to move on.