Hurricane Harvey: How the Storm Impacts the Economy

Hurricanes can damage more than houses and highways. They can also seriously affect the economy.  

Hurricane Harvey has been called a once in 500-year storm. Since Friday it has lashed the Gulf Coast with epic rains and floods that have stranded hundreds of thousands of people without power, and left tens of thousands homeless.

Much of the storm’s fury has focused on Houston, one of the nation’s biggest and fastest-growing cities. Damage from the storm, from lost homes, destroyed small businesses, and disabled highways and airports, as well as the shutdown of the city’s critical petroleum refining industry is expected to soar into the tens of billions of dollars.

And while Houston could take years to recover from Harvey, there are also questions about what the longer-term impact of the storm might be on the nation’s economy, as the storm’s destruction ripples out to the rest of the U.S.

Here’s a quick explainer about why a storm focused in one part of the country can affect the nation’s economy:

  • Houston is the fourth most populous city in the country, with 2.3 million people, according to the U.S. Census Bureau.
  • Houston’s economy is worth $503 billion, according to the Bureau of Economic Analysis.
  • The city is an oil, gas, and petrochemical production hub for the U.S., responsible for about 3% of gross domestic product, according to the New York Times. Houston is also an oil export center for the nation.

Hurricane Harvey and the market

While the storm hasn’t swayed the broader stock markets, energy stocks have taken a hit.

With at least 10 refineries shut down, an estimated 3 million barrels of oil a day are now offline, and nearly a quarter of the Gulf Coast’s energy production capacity has been shuttered, according to reports.

Gas prices are likely to go up by 20 cents a gallon in the near future, according to estimates.

And the cost of recovery is likely to drag on the economy for some time, according to financial experts. The billions of dollars necessary for rebuilding airports, highways, houses and oil fields have to come from somewhere, and large insurance companies have to make payouts, which means their stocks will also take a hit, at least in the short term.

Meanwhile, taxpayers are reportedly expected to foot the bill for nearly 60% of home rebuilding costs in the years to come.

While much of that money will be taken out of the economy, there’s a faint silver lining. As Houston and other parts of the Gulf regain their footing, dollars will flow back into the economy as the construction industry gets infrastructure functioning again and rebuilds houses, analysts say.

Key Takeaways:

  • The devastation from Hurricane Harvey is of epic proportions, and it’s likely to cost the nation tens of billions of dollars as Houston and other Gulf state towns start to rebuild.
  • Early signs indicate that stock markets haven’t been too affected, but the storm shut down one of the largest cities in the U.S. That’s likely to have a negative effect on the economy.
  • One silver lining is that rebuilding, expected to last for years, will be good for the construction industry as it restores infrastructure, housing, and businesses.

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Author:
Jeremy Quittner is the financial writer for Stash.



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