The Perryman Group Estimates Hurricane Harvey Could Reduce Gross Domestic Product by $145 Billion over Several Years
Released on August 31, 2017
Hurricane Harvey has proven to be a catastrophic, unprecedented storm, and its impact has worsened as the storm has continued and surpassed multiple estimates of worst-case scenarios. Harvey is now recognized as the wettest in the history of the continental US and in some areas rainfall has surpassed the average annual totals in less than a week. Many experts are now referring to Harvey as a 1,000-year flood, meaning the likelihood of an event like this occurring is only once in 1,000 years.
Because of the extraordinary nature of this event, it is largely impossible to know the full impact to the Gulf Coast region and the state and nation as a whole, at least until well after the flood waters have receded and the full extent of the damage is seen. It is now widely recognized that the damages from Harvey will by far exceed the damages of Hurricane Katrina, which up until now was the costliest storm to have hit the US. The cost of Harvey is expected to be higher because of the intensity of the storm, the significantly larger population affected, and the region's critical role in the nation's energy industry as well as supply chains. The best available, most recent estimate from AccuWeather indicates the damage caused by Harvey could be as high as $190 billion, making it equal to the cost from Hurricanes Katrina and Sandy combined. This estimate is obviously preliminary and it will be months before a clear picture can be obtained.
In an effort to offer an initial quantification of potential outcomes, The Perryman Group has conducted analysis of the economic impact of a storm of this magnitude on overall economic activity. This analysis reflects a dynamic pattern of recovery typical of property loss and economic responses on past major Gulf Coast storms, fully accounting for the significance of the refining and port infrastructure in the area and its linkage to overall national activity; the latest information regarding insurance patterns; typical patterns in Federal aid; and the offsetting effects of the rebuilding process. (The Perryman Group has analyzed similar issues related to Gulf Coast storms on numerous occasions.)
Based on this model, The Perryman Group estimates that economic impact from Hurricane Harvey could include losses to the US economy, which would be observed over an extended period of time of $145.0 billion in real gross domestic product (constant 2009 dollars), $95.9 billion in real personal income, and 1.01 million person-years of employment. The bulk of the impact falls on Texas and Louisiana, with Texas seeing losses of $110.3 billion in real gross state product, $73.0 billion in real personal income, and 771.6 thousand job years. The losses in Louisiana over time are estimated at $8.7 billion in real gross state product, $5.7 billion in real personal income, and 60.8 thousand job years.
It should be noted that values represent about 7% of the annual output and income levels of Texas; however, these losses will be felt 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 for an extended period of time.