With Hurricane Irma making landfall in Florida, the US has suffered two major hurricanes in a little over two weeks. Fortunately, the impact of Irma was not as bad as initially feared, although it still created significant damage and destruction of homes and businesses. The human suffering is of paramount importance, and the emotional losses are enormous. As with Hurricane Harvey, Hurricane Irma will have a significant impact on the economy.
Damages are only a part of the economic implications of these storms. Any economic stimulus, whether positive or negative, leads to additional responses and multiple rounds of business activity. Business operations have been interrupted, causing lost revenue and profits even beyond the damage to facilities. In many cases, these revenues cannot be recouped. Productivity has also been affected as workers are either absent due to problems with their homes and property or less effective on the job as they deal with those issues. On the other hand, the act of repairing buildings and infrastructure damaged by wind and water leads to an increase in spending in the construction sector. Suppliers of the goods and services needed to get things back to normal will see additional opportunities due to Irma. Replacing personal items, vehicles, furniture, and everything else will increase retail activity in the region. These benefits partially offset the overall losses.
In order to offer an early perspective on potential losses, we used our US Multi-Regional Impact Assessment System and our econometric models to measure the dynamic effects of Hurricane Irma on the economy based on the most current preliminary estimates of damages and losses. The Impact Assessment System essentially measures the economic responses to a stimulus; in other words, it counts the successive rounds of business activity set off by the initial activity (in this case, the hurricanes). The system has been in use for more than 35 years (with updates and refinements) and has been utilized on hundreds of occasions by clients ranging from large government agencies to private sector firms; it has also been peer reviewed. In this analysis, we have translated the estimated property losses into likely long-term losses in business activity (including the offsetting net effects of the subsequent rebuilding activity and the best information available regarding insurance coverage) using techniques previously developed by Dr. M. Ray Perryman, founder and president of the firm, and used in the assessment of prior storms (including Hurricanes Ike, Rita, and Katrina).
Based on this model 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 estimate 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 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.
The combined impact of Hurricane Harvey and Hurricane Irma on the US 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).
Clearly, these storms have had a significant impact on the economy. However, given the industrial composition and recent performance of the relevant areas, we expect both the Texas and Louisiana Gulf Coast and Florida will recover from these losses over time and resume a pattern of expansion in the future.