Extreme Storms Obvious, and Not-so-Obvious Economic Impacts

Above, young activist points out the hardship of storm evacuations on low income residents, as there are many in the southeastern US.

Below, PBS Newshour report on economic ripple effects on the broader US economy, even a measurable hit on the US GDP, according to Barron’s reporter Megan Leonhardt.

Megan Leonhardt in Barrons:

Hurricane Milton could wreak short-term havoc on U.S. economic data, even as it inflicts more lasting pain on Florida’s Big Bend region. The storm—classified as a Category 3 as of Wednesday afternoon—is forecast to hit Tampa and environs late Wednesday night, just two weeks after Hurricane Helene battered the region before traveling north to North Carolina and Tennessee.

The twin storms could distort October’s labor-market data, clip consumer spending and economic growth in the regions affected, and send food prices higher.

“The October jobs report is likely to be significantly affected,” writes Andrew Hollenhorst, chief economist at Citi.

That’s because the reference period under review by the Bureau of Labor Statistics for the monthly jobs report is the pay period that includes the 12th of the month.

Oct. 12 will fall on a Saturday and will count as the last day of the pay period measured. The BLS counts as employed any individuals who work at least one hour during the reference period. Thus, at least some residents of the areas affected by the storms will be counted as working this week.

Yet, with residents evacuating the Tampa area, many more workers could be off the entire week. Employers across the region were closing ahead of Milton’s expected landfall. Orlando-based Disney, Universal, SeaWorld, Busch Gardens, and Legoland theme parks all announced they were closing early on Wednesday. And, many workers might still be off in the parts of North Carolina devastated by Helene. That could lead to an elevated unemployment rate in the October jobs report, and restrict hiring.

Helene’s hit to employment could range from “a very small drag” to the loss of more than 100,000 jobs in October, J.P. Morgan Abiel Reinhart estimates. During the 2005 Atlantic hurricane season, one of the worst on record, initial estimates of national payrolls declined by 35,000 in September 2005. The October jobs report will be released Nov. 1, just ahead of the Nov. 5 presidential election.

A first look at the storms’ potential labor-market impact likely will come on Thursday, with the release of initial unemployment insurance claims filed in the week ended Oct. 5. Economists surveyed by FactSet forecast that 225,000 new claims for unemployment benefits were filed last week, the same level as the week prior.Morgan Stanley economic team expects 235,000 filings. The firm anticipates a hurricane-related boost in jobless claims, but says delays in filing claims in hard-hit North Carolina likely will become apparent later.

Any drop in national employment statistics should be temporary, however, and wouldn’t justify a change in Federal Reserve policy as the central bank weighs further interest-rate cuts at its November policy meeting, writes Ryan Sweet, chief U.S. economist at Oxford Economics.

Beyond the labor-market impact, Milton could lead to an increase in the cost of goods, including food and energy prices. Chevron announced Monday that it evacuated all personnel from its Blind Faith platform and has shut in the facility in preparation for Milton. Production at Chevron’s other Gulf of Mexico oil rigs remains at normal levels.

“More hurricanes could continue to form in the Gulf of Mexico due to abnormally warm water, so the energy industry will likely welcome the end of the Atlantic Hurricane season in November,” writes Louis Navellier, founder of Navellier & Associates.

Fruit prices could also be affected because Florida accounts for 17% of the nation’s citrus production, with the center of the state serving as the highest-producing region.

When Hurricane Ian hit Southwest Florida in September 2022, the damages to the state’s citrus crop were estimated at between $200 million and $400 million,according to the USDA. As the season progressed, however, the agency estimated that losses attributable to Ian were as high as 42% of Florida’s overall production.

“Price increases on some vegetables and fruits, such as oranges and tomatoes, could be seen at the grocery store within a couple of weeks,” says Joel Myers, AccuWeather’s founder and executive chairman.

Milton is poised to become “one of the country’s most damaging and costly hurricanes,” Myers said.

That is due, in part, to the storm’s expected path. A hit to the densely populated Tampa metro area could result in significant property damage and business losses—and a spending pullback. If Milton’s economic losses exceed $200 billion, Myers calculates that the back-to-back hurricanes could negatively impact GDP.

About 2.8% of U.S. GDP is in the “direct path” of Milton’s forecasted trajectory, Oxford’s Sweet said. Even downgraded from its previous catastrophic classification, Hurricane Milton will leave a “significant trail of destruction in its path,” writes EY Chief Economist Gregory Daco. He estimated on Wednesday that the hurricane could reduce U.S. real GDP growth in the fourth quarter by an estimated 0.2 to 0.4 percentage points. Florida could see state GDP growth in the fourth quarter cut by 3 to 4 percentage points, Daco added.

But GDP is an imperfect measure of the economic impact of a hurricane and the costs of Milton are “highly uncertain,” Sweet noted.

The macroeconomic impact of even major hurricanes usually is short-lived. The 2005 storm season was the worst in recent history after Hurricane Katrina made landfall in late August and was followed by Hurricanes Rita and Wilma. The Council of Economic Advisers calculated that the three hurricanes together lowered growth in national gross domestic product by 0.7 percentage points in the third quarter of 2005, and by 0.5 percentage points in the fourth quarter. Katrina also damaged energy infrastructure, leading to a bump in gasoline prices nationwide.

But the Congressional Budget Office estimated that national GDP growth in the first half of 2006 was higher by 0.5% due to rebuilding activity post-Katrina. Moreover, incomes and employment of those affected by Hurricane Katrina recovered fairly quickly, according to analysis from the National Bureau of Economic Research

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Weirdly, Helene has had a noticeable impact on the supplies of IV fluids that hospitals rely on for routine care of compromised patients.
One facility in North Carolina has apparently been cut off by the storm, and 60 percent of our supply of hospital IV fluids are now unavailable.