Why Hurricane Harvey won’t derail the US economy - ING

"The hurricanes will distort GDP, inflation and jobless claims temporarily but the storm is unlikely to knock the US economy off course," explained James Knightley, Chief International Economist at ING.

Key quotes:

"With relief operations underway, the focus remains on the personal loss the hurricanes have inflicted on the people of the Caribbean and the southern United States. Millions remain without power, thousands of homes and offices are uninhabitable, and transport infrastructure is in need of repair. The clean-up operation will take weeks, probably months, exacerbating the sense of loss for those affected. "

"There are also going to be huge economic implications, particularly for the Caribbean islands that don’t have the resources to deal with the disaster themselves. For example, Hurricane Ivan, a relatively modest category three storm, which hit Grenada in 2004 left 90% of houses sustaining damage with 30% destroyed. The financial cost more than USD 1 billion – twice the size of the country’s GDP. It is too early to say how the islands feeling the full force of Hurricane Irma have fared, but news reports indicate it is of at least a similar scale, which will necessitate massive international relief efforts. "

"Hurricanes Harvey and Irma have also inflicted tremendous damage in the US with early estimates suggesting the combined costs could exceed USD 200bn regarding property damage (both insured and uninsured) and economic dislocation. In 2015 (2016 data will be released later this month), the Houston region had a GDP of $503bn or 3% of the national output. Miami/Ft Lauderdale and West Palm Beach accounted for $318bn, and Tampa/ St Petersburg/Clearwater had a GDP of $134bn." 

"In total, around 10% of the US economy is likely to have experienced some form of economic disruption because of the Hurricanes, which will have hurt economic growth in the third quarter." 

"Quantifying the impact is incredibly difficult, but we suspect it could knock anywhere between three-tenths of a percentage point and a full percentage point off the national GDP growth figure versus what might have been possible." 

"However, when Hurricanes Katrina and Rita hit the US in August and September 2005, the national economy experienced an acceleration in growth. GDP in 2Q05 expanded 2.1%, with growth pushing up to 3.4% in 3Q05 before slowing to 2.3% in 4Q05 so we have to remember that there are other stories in play that could offset the impact of the hurricanes. We still think the US will expand by around 3% in 3Q17, boosted by a rebuild in inventories and strong consumer spending elsewhere in the US."