There’s no way to measure the pain and anguish Hurricane Harvey inflicted on Houston area residents, many of whom were uninsured, and many of whom lost a lifetime of memories that can’t be replaced by the insurance they have. But Harvey will also make a big dent in economic growth for the entire country and could spark a round of inflation.
The picture isn’t pretty. Loss estimates range from $75 billion to $125 billion, placing Harvey among the top 10 global natural disasters of the past 50 years. The Houston metro economy is the nation’s fourth largest — by itself larger than the economies of Sweden or Poland. Local business shutdowns in Harvey’s wake could last for weeks or even months, and they will undercut growth around the country.
Houston is a center for petroleum processing; nearly 45 percent of our nation’s refining capacity is in the Gulf Coast area. It is also a source of petroleum-based chemicals used in industries around the country. The effect of rising gasoline prices as a result of refinery shutdowns was immediate. Gasoline futures jumped 10 percent in one day. Heating oil and jet fuel prices also soared.
All will contribute to inflation figures in the months ahead, yet the Fed might have a problem raising interest rates again as it had planned because of general economic weakness in the hurricane aftermath.
The Sept. 1 jobs report was a bit weaker than expected. But Harvey may affect payrolls for months. All in, the immediate impact on U.S. GDP is estimated to be at least one percentage point in the third quarter — both in the immediate Houston area and as a result of the impact across the country.
Yes, activity will pick up when insurance and government payouts start being used to rebuild the area. There will be a positive impact as a result of spending on the cleanup efforts. And, as many thousands of cars are totally junked, automaker profits will rise later this year or next year.
Note: Only economists “keep score” on the impact of a natural disaster. Personal finance writers consider the lessons learned here — and they are many.
—No matter where you live, consider the possibility of flood (or earthquake). Standard homeowners’ insurance policies do not cover flood or water damage. That must be purchased separately from the federal National Flood Insurance Program, which itself is inadequate. It is estimated that fewer than 20 percent of Houston area residents have flood insurance.
—Some personal property simply can’t be replaced, even if you have replacement cost insurance. Check to make sure that you do in fact have coverage that pays not only for the value of your old household items but to replace them with new ones.
—Store financial documents in the cloud. While I’ve always recommended keeping a metal file box of personal documents, it’s time to get more sophisticated. When it comes to choosing between what to grab in a flood or fire, it’s a good bet you’ll chose the family pet over the papers. Buy an inexpensive printer with a scanner, and scan each of those documents (and family photos) to an account in the cloud where you can easily get to them when things calm down. For a good starting list, sign up in the yellow box at TerrySavage.com and get my free Personal Financial Organizer form.
—Make a family plan. Cell phones don’t charge when electricity is out, and many people have lost touch with relatives. You never know when a disaster will strike, so name a place where family members will try to meet up, and designate a contact person.
Finally, count your blessings if you were not directly affected — and make a generous donation to one of the relief agencies working in the area. Next time it could be you. And that’s The Savage Truth.