Hurricanes Irma, Harvey to cast pall over U.S. economy for months and even years

By Jeffry Bartash
9 September 2017
(MarketWatch) – Hurricanes Harvey and Irma have upended the lives of millions of Americans, but the aftereffects will also linger in much smaller way for those entrusted with keeping the U.S. economy safe and sound.
The storms caused tremendous damage, forced thousands of businesses to close and compelled millions of people flee their homes. The cleanup will take years and cost untold sums of money.
The silver lining is that the U.S. economy, now in the ninth year of expansion, is in the best shape in almost two decades. The federal government has more resources at hand to help and a growing economy will aid the areas devastated by the storms as they seek to recover.
At the same time, though, the dislocations will make it harder over the next several months for economists, investors and senior officials at the Federal Reserve to take the temperature of the economy.
Monthly reports on hiring and construction, for example, could look dramatically worse in the next month or two, reflecting almost recession-like levels. And then the inevitable snapback would make the economy look stronger than it is.
“The long-run effect of these disasters, unfortunately, is it actually lifts economic activity because you have to rebuild all the things that have been damaged by the storms,” New York Federal Reserve William Dudley said in an interview just before Irma struck [cf. Bastiat’s parable of the broken window].The rebuilding efforts are sure to pad figures for job creation, retail sales, consumer spending and manufacturing activity. More workers and materials will be needed replace the houses lost, the roads destroyed, the shorelines damaged and so forth.The first taste of the storms’ impact has already shown up.Last week, initial U.S. jobless claims soared by 62,000 to 298,000 to mark the biggest one-week increase since 2012. Virtually all of the increase came in Texas where the damage from Harvey was the most severe.Jobless claims could even top 400,000 briefly in the wake of Irma, some economists suggest.More evidence of disruption could also come in this week’s report on August retail sales. Millions of Americans in the Gulf Coast may have rushed to the stores to buy supplies before Harvey made landfall late in the month, inflating sales figures.These distortions could last until the end of the year, making it harder for the Fed to figure out the underlying strength of the economy. [more]