So far this hurricane season, two of the United States have been ravaged by major hurricanes. Hurricane Harvey hit Texas in late August and left thousands stranded due to hurricane damage and flooding. In early September, Hurricane Irma hit Florida as well as the U.S. territories of Puerto Rico and the U.S. Virgin Islands.
More FEMA Funds Likely to Be Needed
What will the economic impact be? The disaster impact will be huge in terms of U.S. government costs.
Initially, Bloomberg reported that the Federal Emergency Management Agency (FEMA) was burning up its budget paying for losses from Harvey alone. Congress did move rapidly to pass an aid package as the funds dipped perilously low.
But even with the multibillion aid package approved by Congress recently, FEMA may run out of money in roughly a month, according to a former head of the agency. James Lee Witt, who ran FEMA during the Clinton Administration, told Newsweek that Congress will likely have to pass more than the $15.2 billion just approved.
The funds are likely to be inadequate for two reasons. First, the $15.2 billion figure was designed to help Harvey relief efforts primarily. More congressional action will be needed for Irma.
Second, the losses from both hurricanes are expected to be massive. Greg Abbott, the governor of Texas, has estimated losses from Harvey alone at $150 billion to $180 billion.
Witt believes that the entire amount for Texas and Florida combined could be more than $175 billion, and that’s not counting the extensive damage in the U.S. territories.
For Businesses, a Mixed Impact
At first blush, the hurricanes look like bad news for businesses as well. Small businesses shut down and, in their physical locales were damaged, will need to rebuild. In Florida, Walt Disney World and several cruise lines shut down in advance of the hurricane. Shutdowns impact both third-quarter profits and employee salaries – and, in turn, their purchasing power.
Jobless claims were up by 62,000 recently, largely from Texas. It was the largest single weekly increase since Superstorm Sandy on the eastern seaboard five years ago.
The storms are expected to keep jobless claims relatively high during the third quarter – and to keep gross domestic product growth (GDP) relatively low. They may have a negative impact on GDP growth of as much as 0.3%.
Americans can also expect the prices of oranges and orange juice, to rise, as well as that of other Florida crops. Banks estimate that Irma may have caused more than $1 billion in crop damage.
At the same time, though, what was damaged must be rebuilt, and that’s good news for many businesses. Almost every business participating in developing new or repaired infrastructure in affected areas of Texas and Florida will be positively impacted. So will tertiary markets like furniture and household items. So the storms turn out to be good news for contractors and home suppliers.
Lost or damaged possessions ex-homes will also need to be replaced. Harvey is thought to have ruined or swept out to sea half a million vehicles in the Houston area alone. Automakers will likely be on the receiving end of heightened demand from consumers replacing them.
And remember, hurricane season isn’t over yet.
Hurricanes Harvey and Irma caused economic devastation that will likely need for FEMA funds than Congress has already allocated. The impact on business, however, will be both bad and good, as rebuilding will spur business in many sectors.