Economic Impact Of Harvey Could Be Felt Nationwide Before It's Over

Aug 28, 2017
Originally published on August 29, 2017 11:02 pm

Bill Gilmer remembers spending the night listening to the winds of Hurricane Ike tear through his suburban Houston neighborhood in September 2008. He also recalls waking up the next morning to hear something completely different.

"The first sound I heard was chainsaws, and I looked out and all my neighbors were out there clearing the streets, clearing their yards, cleaning up their yards," says Gilmer, who directs the Institute for Regional Forecasting at the University of Houston's C.T. Bauer College of Business.

Houston residents have survived big hurricanes before and know how to pitch in and help each other recover, Gilmer says. But the drenching rainfall that has followed Hurricane Harvey, flooding streets all over the country's fifth-largest metropolitan area, is out of scale with anything the city has seen before, he says.

Chuck Watson, who studies the economic impact of natural disasters for Enki Holdings, says the cost to the economy from the flooding is likely to be $30 billion. That's because of the rain.

"If Harvey were just a hurricane, it would have only caused $4 or $5 billion worth of damage. As a tropical storm phase, it's actually producing five times that much damage," Watson says.

About a third of Houston's economy is directly tied to the oil and gas industry. But the region is also home to non-energy companies, both small manufacturers and large corporations such as KBR, Waste Management and the food service giant Sysco.

Many of those companies have shut down in Harvey's wake, as have several hospitals, both major airports and the Port Of Houston.

"You've got the fifth-largest economy in the United States basically sitting at a dead stop for three or four days," Gilmer says.

Gilmer says the economy will be able to make up for lost time once the flood waters recede, but the physical damage to the city will be much harder to recover from.

"In Houston you're going to have street signs, traffic lights, traffic signals, road damage, culverts, a tremendous amount of public infrastructure damage, and of course, there's no insurance. That just comes right out of the taxpayers," Watson says.

It's not clear yet how many homes have been destroyed yet, but right now Watson estimates the cost of repairing residential properties will be about $12 billion.

Most of that damage won't be covered by insurance, because homeowners' policies typically don't cover flooding. While coverage is available through a federal program, most people never bother to get it, says Loretta Worters, spokesperson for the Insurance Information Institute.

Watson also worries about something else.

Some of Houston's oil refineries are closed right now for a simple logistical reason: Streets are flooded and their employees can't get to them.

The refineries aren't seriously damaged, however — at least so far.

But the continued rain could end up flooding some of them, and if that happens there aren't enough companies with the kind of specialized knowledge to repair them.

"Then you're talking about gasoline shortages and longer term price hikes, and that's going to have a ripple effect through the whole economy," Watson says.

Investors are thinking about that too. At one point Monday, gasoline futures were up as much as five percent.

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KELLY MCEVERS, HOST:

Houston is known as an energy capital, but it's actually a large corporate center, too. The aftermath of Hurricane Harvey will shut down the city's economy and leave plenty of long-term damage as well. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: Chuck Watson studies the impact of natural disasters for the consulting firm Enki Holdings. He's been tracking Hurricane Harvey for days, and he says the huge amount of rainfall it's produced has taken everyone by surprise.

CHUCK WATSON: If Harvey were just a hurricane, it would've only caused maybe $4 or $5 billion worth of damage. At the tropical storm phase, it's actually producing maybe five times that much damage.

ZARROLI: Right now, Watson calculates that Harvey will cause a staggering $30 billion in damage. Houston is an oil and gas center, but it's also home to companies such as KBR, Sysco and Waste Management as well as lots of small manufacturers. They're all shut down now, as are the two airports, several hospitals and the Port of Houston. Bill Gilmer is an economic forecaster at the University of Houston.

BILL GILMER: You've got, you know, the fifth-largest economy in the United States basically sitting at a dead stop for three or four days.

ZARROLI: Gilmer says Houston can quickly make up the lost work. He says the city has been through bad storms before, and residents know how to recover. Gilmer, who lives in a wooded area outside Houston, remembers waking up the morning after Hurricane Ike in 2008.

GILMER: First sound I heard was chainsaws. And I looked out, and all my neighbors were out there clearing the streets, clearing their yards, cleaning up the yards. And then they went out, and they cleaned up all of the trails.

ZARROLI: But Gilmer also acknowledges that the damage from Harvey is likely to be out of scale with anything the city has seen before. Right now, estimates of the damage vary wildly, but the cost of just repairing people's homes will be many billions of dollars. Loretta Worters is with the Insurance Information Institute.

LORETTA WORTERS: There will be some flood - some wind damage, but I think the majority of the losses are going to come from flooding.

ZARROLI: And the great majority of homeowners don't have flood insurance, especially low-income people. So to rebuild, they'll have to take out federal loans. And Chuck Watson says the damage could be even greater depending on how long the rain continues. Watson also worries about something else. Houston's oil refineries haven't been seriously damaged so far. But if they flood, there aren't a lot of companies that know how to repair them.

WATSON: Then you're talking - instead of a couple of weeks, you're talking months to come back online. And then you're starting to think in terms of gasoline shortages and longer-term price hikes. And that's going to have a ripple effect to the whole economy.

ZARROLI: At that point, Hurricane Harvey will become not just a Houston problem but a problem for the whole country. Jim Zarroli, NPR News. Transcript provided by NPR, Copyright NPR.