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Hurricane Florence, despite destruction, will likely have small impact on US economy

Paul Davidson 
A residents carry an American Flag to place on his truck as members of a punt team with the United States Coast Guard preform search and rescue through flood waters in the MayFair neighborhood in the aftermath of Hurricane Florence on Monday, Sept 17, 2018 in Lumberton, NC. 
Jabin Botsford | The Washington Post | Getty Images

Despite the wide path of devastation left by Hurricane Florence, its effect on the U.S. economy is likely to be modest.

The storm is projected to shave economic growth in the current quarter by one to two tenths of a percentage point, according to Moody's Analytics, as residents forgo trips to the mall or restaurants and manufacturers temporarily shut down production.

That means an economy projected to grow a robust 3.9 percent in the current quarter could instead expand by a still healthy 3.7 percent.

The damage to homes, businesses and public infrastructure is expected to total $16 billion to $20 billion, Moody's estimates. Such estimates are still in flux because of severe flooding that could last for days. Florence has killed at 20 people and disrupted the lives of millions.

Oxford Economics expects the fallout could be more extensive. Florence could trim third-quarter growth by two to three tenths of a percentage point, Oxford's chief US economist, Greg Daco, figures. And he estimates losses or damage to infrastructure of $30 billion to $40 billion.

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Either the Moody's or Oxford estimate would still place Florence among the top 10 costliest hurricanes in U.S. history.

Most of the lost economic output is likely to be made up in the fourth quarter as consumers make purchases they deferred and replace damaged vehicles, and repairs begin on effected homes and businesses.

Hurricanes Harvey (in Texas) and Irma (in Florida) last year sliced U.S. economic growth in the third quarter by about half a percentage point. And the storms caused a whopping $180 billion in damage.

Harvey struck Houston, the heart of the nation's energy industry. About 15 Texas oil refineries representing 25 percent of U.S. refining capacity shut down, pushing up gasoline prices.

The regions of the Carolinas effected by Florence make up about 1.1 percent of the nation's gross domestic product, Moody's says. Gasoline and diesel terminal racks in the Wilmington, N.C., area could feel some effects but they're likely to be limited, says Moody's economist Ryan Sweet. Still, the two states, once centered on agriculture and textiles, have become bustling advanced manufacturing hubs.

How the economy could feel the effects:

Retail and services:

While purchases of items such as clothing, toys and jewelry scuttled by the hurricane will be made up in coming weeks or months, canceled visits to restaurants probably won't, Daco says. Neither will some services, such as housecleaning, he says. Thousands of residents also will replace lost or damaged vehicles, though that will likely fall far short of the more than 500,000 cars and trucks replaced after Hurricane Harvey, says Ian Shepherdson, chief economist of Pantheon Macroeconomics.

Manufacturing

North Carolina is home to the nation's second fastest growing aerospace sector and a cluster of biotech, information-technology and energy companies. The storm is likely to trim industrial production but the effect on the nation's economic growth should be well under a tenth of a percentage point, Daco says.

Tourism

The impact on the Carolinas' thriving tourism industries is likely to be small because the busy summer season is largely over, Sweet says.

Jobs

The Labor Department conducts its employment survey in the week that includes the 12th of every month. That means the survey took place last week as residents evacuated and ahead of the storm. But full-time employees who worked any part of last week would still be counted as employed. However, "part-timers who work only for part of each week are vulnerable, so payroll growth will be depressed in September" by "several tens of thousands," Shepherdson says.

The drop, however, is likely to be made up in following month or two.

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Key Points
  • Property damage from Hurricane Florence is estimated at $17 billion to $22 billion, and that forecast could be conservative, depending on further flooding, says Moody's Analytics.
  • Economists so far see a minimal impact to growth from the hurricane, which Moody's sees shaving 0.2 percentage points from third-quarter GDP.