Measuring the Impact
Hurricane Harvey had a devastating impact on hundreds of thousands of individuals along the Texas coast, damaging at least 280,000 homes. The devastation was particularly acute just north of Corpus Christi in towns such as Rockport, Port Aransas and Victoria, where hurricane winds exceeding 100 miles per hour destroyed a large percentage of homes and businesses. In the Houston area, many impacted businesses had the resources to start repairs soon after the water receded. For many homeowners, however, the recovery process continues and may take years.
When measuring the economic impact of a severe weather event, there are two primary types of losses: 1) direct losses that include damage to buildings, structures, vehicles, crops and livestock, and 2) indirect losses that are more temporary and include lost activity such as production, retail sales, wages and tax revenues. By their nature, indirect losses are more difficult to measure and thus their estimates tend to vary greatly.
The impact to local residents’ wealth and the pace of the recovery process also differ depending on whether the losses are insured. If the damage is mostly caused by flooding versus wind, generally there will be a greater proportion of uninsured losses since flood insurance is less common than wind insurance.
The most recent direct damage estimate from Harvey estimated by Moody’s Analytics is between $60 billion and $70 billion. Ranking hurricanes on inflation-adjusted losses, Harvey ranks second nationally behind Hurricane Katrina and ahead of Sandy, according to the National Oceanic and Atmospheric Administration.
Since most of the damage from Harvey was due to flooding, it is estimated that less than a third was covered by insurance.
The balance will need to be covered by private savings and public funding. As of mid-December, Texas had received about $11 billion in federal disaster aid. While the state government, the Small Business Administration, the Red Cross and other charities have also raised money, the total is likely to fall well short of the uninsured losses.
While residents struggle to repair damage to their homes, it is important to know if jobs will continue to grow in the region. Shortly after Harvey occurred, there were requests to ascertain the impact of Harvey on future job growth in the Gulf Coast and Texas. The Dallas Fed took two approaches to estimate the impact.
The first method was to model the path of job growth going forward using estimated losses from past weather events along the coast. The model, estimated in early September based on initial loss estimates, predicted that Texas jobs would decline between 2.3 percent and 5.8 percent in September (versus expected growth with no hurricane of 2.9 percent)—but bounce back in October, growing between 9.9 percent and 15.0 percent and landing slightly above the previous number of jobs expected for October prior to the hurricane. As shown in Chart 1, the actual path of job growth has been similar to what was estimated by the model, although the decline and bounce back have been more subdued – likely due to Harvey having a much larger impact on residential versus business structures than past weather events.
The second approach was to survey the Bank's numerous business contacts. Special questions on the hurricane impacts were added to the Texas Business Outlook Surveys during September. The results were consistent with the model in that they showed significant impacts on employment and output that were mostly short lived. The survey results showed that 73 percent of Gulf Coast businesses experienced a shutdown of five days or less, although 64 percent said they had a reduction in revenue for more than five days. Only 16 percent of Gulf Coast respondents reported that the hurricane would result in a significant decrease in revenue or production over a six-month period.
Overall, Hurricane Harvey resulted in a historically large loss of residential and business property on the Texas Gulf Coast that will be felt for years to come. Fortunately, however, Harvey was not able to reverse the positive economic growth trend occurring in the region. Going forward, this region is likely to continue to prosper. However, the number of severe weather events has increased over the past decade, and local leaders will have to address the infrastructure and planning needs to deal with these challenges (see "On the Record with Harris County Judge Ed Emmett").