By: Jeanna Smialek
Hurricane Harvey will come with major economic consequences for an area critical to U.S. energy production that will be painful, costly and lasting, but it’s unlikely to cause big disruptions across the national economy.
Harvey is causing record flooding across the heart of an oil-producing region and in Houston, the fourth-largest U.S. city. The rains following Harvey’s landfall on Friday night are expected to last for days. About one quarter of oil and natural gas production in the Gulf of Mexico and more than 10 percent of U.S. refining capacity has been shuttered.
The disaster that’s still unfolding across the Gulf Coast of Texas will be crushing for the region’s economy, destroying property, possibly pushing up joblessness and driving down wages, just as New Orleans experienced after Hurricane Katrina in 2005. Because such catastrophes are regionally contained and can spur some growth via rebuilding, they come with difficult-to-predict wider effects for the country’s $19 trillion economy.
“If past is prologue, I would be very comfortable at this point saying that the devastation is significant, but it is localized,” said Mark Olson, a former Federal Reserve governor who in 2005 dissented against an interest-rate hike because he wanted to see if Katrina’s damage dragged down the national economy. “I don’t think there will be a significant dislocation or disruption beyond the state of Texas.”
Harvey is bringing to a standstill an important part of the state’s $1.7 trillion economy, which has been one of the fastest growing in the U.S. during the past year. While hard-hit Corpus Christi and Victoria account for just 2 percent of the state’s output, Houston counts for 31 percent, according to analysis by IHS Markit regional economist Karl Kuykendall.
No. 2 Economy
That’s a significant share of activity in a state that has the second-largest economy in the nation after California and accounts for about 9 percent of U.S. gross domestic product.
While the storm will slam the economies in Texas and Louisiana, the broader impact on U.S. third-quarter growth “will be minimal,” IHS Markit said in a note on Friday.
Still, in the consumer sector alone, weather analytics company Planalytics Inc. estimates that Harvey will have a $1 billion impact as restaurants and shopping malls miss out on sales. For the rest of the nation, gas prices will probably go up, reducing consumers’ pocket money for other purchases, said Executive Vice President Evan Gold.
“Right now, it’s all about need-based purchasing,” Gold said, noting that when it comes to economic damage it will probably align with Tropical Storm Allison, which hit the southeast in 2001. . . .