For the first time in history, two category 4 hurricanes have hit the United States in a single year. In fact, the US dealt with these two major storms in only a little over two weeks. Thanks to a slight change in the path of Irma, damages estimates were lowered substantially from the initial projections, but wind and flooding have destroyed homes and commercial buildings. Although the primary focus is appropriately on the tragic loss of life and huge emotional toll, the economic fallout from Irma will also be felt across the nation.
Millions of people in Florida remain without power as I write this, with up to 10 more days estimated before power is fully restored. The state’s large tourism industry has been temporarily shut down, and major crops such as oranges are threatened. Damages estimates are coming in at around $50-$100 billion, a fraction of what they might have been if the storm’s path had caused a more direct hit on the Miami area.
As I’ve mentioned in prior columns, the damages are only part of the economic story. There will also be costs such as lost productivity and lasting fallout for businesses, as well as additional business activity during the recovery phase for rebuilding and replacing damaged items.
We again used our US Multi-Regional Impact Assessment System and our econometric models to measure the dynamic effects of Hurricane Irma to translate estimated property losses into likely long-term decreases in business activity (including the offsetting net effects of the subsequent rebuilding activity and the best information available regarding insurance coverage).
Based on our models and current property damage estimates, when multiplier effects and the various positive and negative aspects of the economics of the storm are considered, the net impact of Hurricane Irma could include losses to the US economy (which would be observed over an extended period of time) of $76.2 billion in real gross domestic product (constant 2009 dollars), $50.5 billion in real personal income, and about 553.7 thousand person-years of employment.
For Florida, we estimated Hurricane Irma will result in losses of $58.6 billion in real gross state product, $38.7 billion in real personal income, and 409.9 thousand job years when multiplier effects are considered.
We had previously estimated the economic impact from Hurricane Harvey and have now updated those values based on more recent property damage estimates. The losses to the U.S. economy over the next few years include $151.1 billion in real gross domestic product (constant 2009 dollars), $100.0 billion in real personal income, and 1.1 million person-years of employment. The bulk of the impact falls on Texas and Louisiana, with Texas seeing losses projected at $114.9 billion in real gross state product, $76.1 billion in real personal income, and 804.1 thousand job years. The losses in Louisiana over time are estimated at $9.1 billion in real gross state product, $6.0 billion in real personal income, and 63.3 thousand job years.
The combined impact of Hurricane Harvey and Hurricane Irma on the U.S. economy over the next several years is estimated to be a $227.3 billion reduction in real gross domestic product, $150.4 billion in lost real personal income, and a loss of 1.6 million job years of employment (including multiplier effects).
The economic fallout from Hurricanes Irma and Harvey will continue for years. Even so, recovery is already underway, with much of Florida’s tourism and Texas’ energy sector expected to be back up and running in just weeks. In fact, a number of Texas refineries are already back online. I expect a full recovery for the economies of both Texas and Florida over time, though the human costs and emotional toll of these massive storms will remain with us much longer.
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Dr. M. Ray Perryman is president and CEO of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.