What happens after big storms?
Damage from the 1938 Hurricane. Source: NOAA
The stories coming out of Texas are heart-wrenching: senior citizens being evacuated using their walkers through chest-deep water; overpasses submerged by overwhelming flood waters; livestock being swim-herded to safety. This hurricane / tropical storm has dropped more precipitation than any recorded storm in history – almost 10 trillion gallons so far, with another 5 to 10 trillion gallons expected.
The economic loss is expected to be greater than $30 billion – with only about a quarter covered by insurance. This puts it among the top 10 worst storms in US history. In comparison, the worst – Katrina – caused $160 billion in damage, with about half of that insured. Flood damage is typically only covered by Federal flood insurance, which only a small proportion of homes in the Houston area have. Disaster relief may include no-interest loans, but these have to be paid back.
Public Domain. Source: Texas National Guard
After the rain stops and the flood waters recede, the recovery can really begin. Rebuilding requires labor and materials. There’s a flurry of activity as people clean up and muck out their homes. The pace of local economic activity picks up. Contractors will move to an area – if only temporarily – to focus on rebuilding. Unemployment falls as the need for labor of all kinds escalates. This is helpful. Texas’s economy is strong, but spotty. There are lots of areas near Houston of high unemployment. Well, it’s not going to be hard to find a job there now.
Texas Unemployment by County. Source: St. Louis Fed
Harvey’s economic impact of is going to be huge. Houston is the fourth largest city in America, with a metro area population of over 6.3 million. It’s a major hub for the energy industry, with company headquarters for Conoco, Phillips 66, Halliburton, Apache, Marathon, and many other companies located there. Its port is one of the most active in the world, and the local economy is larger than that of Austria or South Africa. With all natural disasters, there’s a small recession and recovery. The bigger the storm, the bigger – and more widespread – the impact.
The worst disasters are those that affect human capital. Thankfully, Harvey has caused little loss of life. Over a century ago, the philosopher John Stuart Mill noted with wonder how resilient people are. Over time, all the mischief done by earthquakes, floods, hurricanes, and other ravages seems to dissipate. Let’s hope that the floodwaters recede soon, and so we can all help Texas cope with its mess.
Douglas R. Tengdin, CFA