Irma & Harvey – What’s the Economic Impact of the Hurricanes?
Miami, Florida, while not suffering a direct hit from Hurricane Irma, offered up one of the more enduring images of the damage left behind. Three large construction cranes in downtown Miami all suffered structural failure.
The broken assembly is a stark reminder of the power of a hurricane, even when not in the proverbial “eye”.
It is rare to have two significant hurricane events in such a short calendar period. And the hurricanes (Irma and Harvey) struck two states where the economies were already booming. While Harvey’s arrival in Texas appeared more severe, early indications are that Irma’s march up the length of Florida created more actual damage. The numerous cranes in south Florida are a testament to the building boom of that region. And the area of North Texas already had a void of more than 20,000 construction workers, prior to Harvey’s arrival.
If history is any indicator, the hurricane’s economic impact will essentially be a wash. Goldman Sachs suggests that Q3 GDP will be reduced by as much as 1%. However, the building surge that will inevitably follow will make up the difference in the next 3 quarters. While repair activity will flourish in the next 3-month period, it will be counterbalanced by the layoffs at companies that are awaiting those repairs (retailers in particular).
Labor demand for construction will put pressure on both Texas and Florida, while the supply of construction material is a bit of unknown. The demand for standard construction materials (lumber, roofing material, etc.) will necessarily spike, causing price increases. But, it’s unclear if either hurricane impacted the production capabilities of firms that produce said materials. However, lumber prices were already up, pre-hurricane, due to the recent 20% tariff on the import of those products from Canada.
At the end of the day, most economists are predicting that over the next 9 months, the hurricanes’ impact will be economically neutral. And just like the construction cranes of Miami, repairs will be made and activity will resume.
