Hurricanes Hit Hard on Regional Economies

Hurricanes Hit the Economy also

Hurricanes Hit the Economy also

Hurricane ‘Florence’ made landfall on September 14th crashing into the eastern coast of the United States. The storm, predicted to hit the coast as a Category 4, became the talk of the town in Virginia, and North Carolina and South Carolina, states all predicted to be in the path of destruction. Milk, bread, and water became virtually impossible to find in these states as the storm approached and many localities issued a state of emergency to prevent price gouges as supplies increased in demand. Hurricanes have a clear impact on the economy surrounding weather ready supplies but what is the effect of a hurricane on the total economy? This post delves into some of the negative effects hurricanes can have on the regional economy regarding housing, fuel prices, and jobs in the affected regions.

When a hurricane strikes a community, it leaves an obvious path of destruction. Because of high winds and water from storm surges, homes, businesses, and crops may be destroyed or damaged, public infrastructure may be compromised, and people may suffer injuries or loss of life. Such obvious impacts can be called “direct impacts” because of the close connection between event and damages, whereas, secondary impacts are those that are related to the direct impacts of a hurricane. Generally, secondary impacts result in the days and weeks following a hurricane’s passage. For example, a hurricane may destroy energy related infrastructure such as an oil refinery. The direct impact is the cost associated with rebuilding the refinery and associated infrastructure; secondary impacts might include the rise in fuel prices that not only affects individual spending capacity and their day-to-day activities but also affects retail and auto industries owing to the shortage of fuel supply. For instance, last year, Hurricane Harvey struck Houston, the heart of the nation’s energy industry. It led to the shutdown of about 15 Texas oil refineries representing 25 percent of U.S. refining capacity, raising gasoline prices (Davidson, 2018). In general, such secondary impacts are more difficult to assess because they require estimations and are part of an existing social process.

Here is another example of how hurricanes have direct and secondary impact on housing prices in the affected areas. The destruction of houses by hurricanes directly effects house prices and indirectly effects local incomes (Murphy and Strobl, 2010). On the one hand, the shortage in supply is likely to cause an increase in prices in the short run. At the same time, however, hurricanes may cause enough disruption to local economic activity to negatively affect income and consequently the demand for housing, at least in the short run. Moreover, if in response to the hurricane strike, current or potential homeowners update their subjective probability of a hurricane strike occurring, this may reduce the attractiveness of hurricane-prone areas and reduce housing demand even in the end.

Natural disasters such as hurricanes are likely to cause a disruption to the flow of income in the economy (a secondary impact) as normal economic activity is interrupted (direct impact). For instance, Harvey (in Texas) and Irma (in Florida) affected the job market in the United States and slowed economic growth in the third quarter (Capriglione, 2017). Around 1.5 million people were unable to work due to bad weather during September 2017, and restaurants and bars, an industry where most workers only get paid if they show up to work, were particularly hit in the affected region (Chandra, 2017) . However, this effect on the jobs and wages is usually short term, and usually recovers in the next quarters.

Housing, incomes, fuel prices, and jobs are all additional side effects of hurricanes on a nation and can have short term and long term impacts on the economy, impacting every person in the nation. Policy makers need to be concerned with the growing trend in the number and strength of hurricanes and how they will continue to impact the economy as their strengths and numbers continue to grow.

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