Hurricane Ian Hits Central Florida Leaving Economic Problems

Hurricane Ian Will Cause Short-Term Economic Hit, Economists Say by bloombergsubscription

Hurricane Ian will likely weigh on U.S. economic growth through the end of 2022, economists say. Beyond that, the rebuilding and recovery will nudge up economic output over the coming years.

According to an early estimate by Fitch Ratings, the hurricane pummeled fast-growing communities along the southwest coast of Florida, causing between $25 billion and $40 billion in insured losses. Widespread power outages, closed airports, and impassable roads will slow the economy’s reopening. More damage is likely as the storm headed for Georgia and South Carolina on Friday, as reported in The Wall Street Journal Digital.

Greg Daco, a chief economist at EY Parthenon, estimated the storm could lower Florida’s economic output by about six percentage points in the third quarter. He said that that would shave about 0.3 percentage points off nationwide economic growth from June to September and roughly 0.1 percentage points in the year’s fourth quarter.

Natural disasters often cause a short, sharp economic contraction in affected areas. Businesses close temporarily, and residents flee or hunker in their homes.

But some of that lost economic activity is slowly made up in subsequent years when federal disaster assistance and insurance payouts allow for rebuilding.

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“I expect people will stop going to restaurants for a while, the nightlife in Tampa will probably not be the same, and there might be some businesses that are forced to close,” said Tatyana Deryugina, an economist at the University of Illinois Urbana-Champaign. “On the other hand, there will be destroyed cars, destroyed housing that needs to be rebuilt, and people will go out and spend money, driving GDP up.”

One factor that could complicate and lengthen Florida’s rebuilding is the shortage of construction workers and materials that has pushed up prices. The price producers pay for residential construction inputs rose 10.6% in August from the previous year. The growth rate has slowed since last year but remains well above where it was before the pandemic.

Construction worker wages were up 5.3% in August from a year ago. In 2019, by contrast, year-over-year wage increases averaged 2.9% a month.

Economists say that many disasters, such as hurricanes, have relatively modest economic impacts in the long run.

“Generally, natural disasters don’t have structural effects on economic activity,” Mr. Daco said. “What’s been destroyed eventually gets rebuilt or gets transformed.”

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That suggests the affected areas around Fort Myers or Tampa, which had been rapidly growing before the hurricane, won’t suffer permanent damage.

In August, unemployment in the Fort Myers and Tampa metropolitan areas was 2.7%, lower than the national rate. Both sites have seen a rapid influx of population during the pandemic. Florida’s economic growth has outpaced the country’s every quarter since the beginning of 2021.

One advantage is that Florida is used to major storms and has prepared for them. The state set aside $2 billion in May to help insurance companies deal with claims.

That has helped stabilize borrowing costs for the state and its local governments, which should help in the reconstruction, said Denise Rappmund, a senior analyst at Moody’s Investors Service.

“From a credit perspective, generally these issuers are able to withstand these natural disasters and come out OK,” she said.

For instance, according to a Moody’s report, the small Florida town of Mexico Beach bounced back relatively rapidly from Hurricane Michael in 2018. The storm destroyed about 1,600 housing units in the city. A year later, the report said that 160 properties had been sold and land prices were back to where they were before the storm.

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In the long term, people who live in the path of a hurricane can actually see their employment prospects improve, thanks to the rebuilding effort.

A 2016 study by economists at the U.S. Census Bureau and the Bureau of Labor Statistics found that earnings of people affected by hurricanes outpaced those who weren’t affected within three years of the storm, likely caused by higher labor demand during the reconstruction. The study found that higher earnings in many cases more than completely offset income losses in the immediate aftermath of the storm.

A study earlier this year by Brigitte Roth Tran and Daniel Wilson, both of the Federal Reserve Bank of San Francisco, found that counties hit by natural disasters see higher per capita incomes after eight years than they otherwise would. House prices are also more elevated, they found.

“Despite the immense toll that disasters take, local economies in the U.S. have generally recovered successfully in terms of income,” they said.

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