PNC Chief Economist Gus Faucher has offered commentary on the expected economic impact of Hurricane Irma.
This hurricane on the heels of Harvey, as of Friday afternoon September 8th is forecasted to impact Florida and much of the southeastern USA.
• Like Hurricane Harvey before it, Hurricane Irma is unlikely to seriously damage the U.S. economy, although Florida could take a temporary hit. Irma will result in a temporary loss of output as businesses shut down for the storm. Closures and property damage from Irma will also result in a temporary decline in economic activity. And if there is extensive damage to tourist destinations in Florida, travelers could stay away from the state. As a result, Irma could weigh on US GDP growth in the third quarter of 2017, as Hurricane Harvey has already done.
• But any economic damage will be small and temporary. Florida accounts for about 5 percent of US GDP, and about 6 percent of US employment. Much economic activity in the state will not be disrupted by the storm. And most people will get back to work shortly after Irma leaves the state. Tourist traffic to Florida could suffer, but consumers will likely spend their recreation dollars elsewhere, so the national economy will not suffer.
• In addition, any lost output and employment are likely to be made up in subsequent quarters. Reconstruction in the wake of Irma, funded by insurance payouts and federal aid, will boost the state’s economy and hiring in late 2017 and early 2018. Similar patterns have been seen with other natural disasters, such as Superstorm Sandy, Hurricane Andrew, and the Northridge earthquake.
• The one recent US natural disaster that had a significant long-run economic impact was Hurricane Katrina. Because of extensive flooding there was a permanent decline in population and employment in New Orleans. But the national impact was limited as economic activity flowed to other parts of the country. And the extensive and permanent damage to New Orleans in the wake of Katrina is unlikely to be repeated with Florida and Irma.
• Irma is unlikely to affect national energy markets. With Gulf Coast refineries temporarily shut down in the wake of Harvey, nationwide gasoline prices have risen by about 30 cents a gallon, according to AAA, to their highest level in more than two years. But Irma is unlikely to affect national energy markets, consumers are in good condition to weather the increase, and gas prices should come down in the weeks ahead as closed refineries come back on line.
• Despite this year’s hurricanes the current US economic expansion, now in its ninth year, will continue. The fundamentals for the US economy remain sturdy, with solid job growth providing support to consumer spending, an expanding global economy, good corporate balance sheets, and stable financial markets. US economic growth may briefly slow in the third quarter because of Harvey and Irma, but should bounce back later this year and into 2018.