Hurricanes, arrays of hailstorms, earthquakes and fires, the US coastal and non-coastal areas have been under an onslaught of natural disasters. That said, it’s worth examining the economic ripple effects of these natural disasters.
Examining a Disaster’s Economic Ripple Effect
Hurricanes, arrays of hailstorms, earthquakes and fires; the US coastal and non-coastal areas have been under an onslaught of natural disasters. That said, it’s worth examining the economic ripple effects of these natural disasters.
The short-term economic effects of natural disasters are evident simply by the damage done, but the final tally of economic impact can be staggering. Hurricane Harvey’s final cost from the damaging winds in 2017 were around $125 billion dollars. The combined property damage between Harvey and Irma, another property destroying 2017 hurricane, cost $175 billion dollars. Back in 2005, hurricane Katrina ended up costing $108 billion, with only $80 billion dollars being covered by insurance.
Effect #1: Local and State Impact
In general, on a local level, natural disasters do the most damage to infrastructure. After hurricane Maria hit Puerto Rico in 2017, Puerto Rico’s infrastructure was in such bad shape that aide workers couldn’t use the roads or ports to get to where they needed to go. Maria will likely cost $30 billion dollars in damages for Puerto Rico alone. The effect of natural disasters may also result in drastic, short-term insurance loss. Insurance companies paid out $175 billion dollars due to natural disasters in 2016. The toll is expected to be higher for 2017.
Personal property isn’t the only sector of the local economy that natural disasters affect; local businesses also suffer damage, loss of utilities and struggle to remain open. In the short-term, the job market tends to get hit pretty hard. The last week of August in 2017, 62,000 more Texans than average applied for jobless insurance, most likely due to the effects of hurricane Harvey the same year. This is the highest level of jobless insurance claims in two years. However, the job market is likely to bounce back soon, as it often does after incidents like this. Hurricane Katrina was a special case, New Orleans’ nonfarm payroll is still 7% lower than pre-Katrina.
State GDP suffers from the effects of natural disasters as well. Puerto Rico’s damages make up ⅓ of the territories’ GDP. Local GDP is affected much more than national, with Texas’ GDP expected to grow 3.7% instead of 4.3% forecasted prior to hurricane Harvey.
Effect #2: Commodities
Many in the US have already noticed recent natural disasters’ impact on commodities, specifically on gas prices. Hurricane Harvey damaged numerous oil refineries in cities near the Gulf of Mexico such as Corpus Christi. Katrina was even worse, damaging 19% of oil production in the US. Post-Katrina, gas reached almost $5 per gallon before the government intervened. Current rises in gas prices are expected to increase inflation temporarily, but the federal government says inflation as a general trend should stay on target. Other commodities such as exports can also be affected, especially in small developing countries. However, in large, wealthy countries, once rebuilding starts and infrastructure is restored, natural disasters tend not to have a lasting effect on exports as a whole.
The third quarter GDP of 2017 took a major hit due to the combined efforts of hurricane Harvey, Irma and Maria. Florida and Texas are some of the largest economies in the US, making economists predict only a 2% GDP growth this quarter instead of the previous 2.8%. Rebuilding efforts are expected to boost these states economies. We know from experience that the national economy over the medium- and long-term should not be affected.
Effect #3: Investor Portfolios
Investment in ADRs and ETFs are highly affected by natural disasters, both at home and abroad. If you invested in any businesses near the damage, such as oil refineries in south Texas, your portfolio may have taken a hit. Industries such as transportation and construction can hit a boom after national disasters, making a potential smart investment. Many car dealers near Houston were shut down, hurting investors in the short term, but there is also a much greater need now for people to replace their cars, meaning an investment in this industry might pay off in the medium to long-run.
It is easy to discuss the economic effects of major storms and other disasters. What isn’t easy to measure is the social impact on metro areas and the lives that are turned completely upside down.
Takeaway
Now is the time to think about your portfolio and well-being, but don’t forget the many lives that were impacted in Texas, Florida, Puerto Rico and so many other areas.
One way to help others is to donate to organizations that are on the ground and making a difference in the hardest hit areas.
Visit this list if you are unsure where your financial contribution may have the greatest impact. Most charitable contributions will both help the victims and survivors of these natural disasters and create a tax savings for the individual investor.
For more information or a complimentary consultation contact the financial planning, wealth management and investment services team at Hudson Companies today.
