Hurricane Harvey Could Reduce Gross Domestic Product by $151 Billion over Several Years

Hurricane Harvey was a catastrophic, unprecedented storm surpassing multiple estimates of worst-case scenarios. Harvey is now recognized as the wettest in the history of the continental US, causing extreme flooding in and around the Gulf Coast region.

Because of the extraordinary nature of this event, the full impact to the Gulf Coast region and the state and nation as a whole is still being assessed. The cost of Harvey is particularly high due to the intensity of the storm, the large population affected, and the region’s critical role in the nation’s energy industry as well as supply chains. One recent estimate from an academic group that has successfully measured other storms in the past indicates the damage caused by Harvey could be as high as $197 billion, making it higher than the cost of Hurricanes Katrina and Sandy combined. This estimate is still preliminary and may either rise or fall in the months to come (some other estimates are somewhat lower).

The Perryman Group has conducted analysis of the impact of Hurricane Harvey on overall economic activity. This analysis is adjusted for the offsetting positive effects of the rebuilding process and reflects a dynamic pattern of recovery typical of property loss and economic responses in past major Gulf Coast storms. It fully reflects the significance of the refining and port infrastructure in the area and its linkage to overall national activity and the latest information regarding typical patterns in insurance and Federal aid. It also seeks to incorporate the long-term effects of various environmental concerns arising from the storm. Obviously, all of these factors could change markedly over time. (The Perryman Group has analyzed similar issues related to Gulf Coast storms on numerous occasions.)

Based on this model, The Perryman Group estimates that the losses to the US 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.

It should be noted that values represent about 7% of the annual output and income levels of Texas; however, these net losses would be felt irregularly over an extended period. Thus, while the effect on the Texas economy is significant, it is not likely to derail its long-term pattern of growth.

Updated September 22, 2017 to reflect the latest damage estimates.