By Josh Zumbrun and Sarah Chaney
Hurricane Harvey will distort measures of the U.S. economy in
weeks and months ahead. Everything from jobless claims, which
already surged in a report on Thursday, to gross domestic product
and inflation, will be knocked off course by the storm.
The storm will make it difficult for economists to gauge the
trajectory of the economy, with brief spikes across a wide range of
reports. It will be hard to discern whether bad reports result from
storm damage and then whether good reports owe to the effects of
rebuilding. It could be well into 2018 before the storm's effects
have fully washed out of the economic data.
Forecasters in The Wall Street Journal's survey of economists
estimate the storm will affect the most important economic reports
at the national level in the months ahead. They expect the storm to
reduce the pace of job gains by about 27,000 jobs a month in the
third quarter on average, followed by little change in the fourth
quarter and then a boost of 13,000 in the first quarter 2018, as
many people find work in the rebuilding process.
The growth rate of gross domestic product will fall by about 0.3
percentage points in the third quarter, they expect, followed by no
effect on the fourth quarter, and an 0.2 percentage point boost in
the first quarter of 2018.
"The devastation in the surrounding Houston area, America's
fourth-largest city, will be significant enough to negatively
impact activity and employment nationally, especially in the third
quarter, but some of those effects will be transitory," said Chad
Moutray, chief economist for the National Association of
Manufacturers. "...I would expect the Houston economy and its
all-important energy sector to be quite resilient moving
forward."
Estimates of the storm's national economic impact remain
preliminary -- and Hurricane Irma, which is currently headed for
Florida, could exacerbate the effects. Beginning this week, a
growing number of economic indicators will show Harvey's impact,
from jobless claims, to inflation, to retail sales, to housing
starts and beyond.
In the longer run, the storm is expected to have no lasting
impact, with forecasts for gross domestic product, unemployment,
inflation and other major economic indicators unchanged for 2018
overall, according to the survey of 56 business, financial and
academic economists from Sept.1 to Sept. 5. In the months ahead,
here is where economists say to watch for the storm's
distortions.
Jobless Claims
Early evidence of the hurricane's impact on the U.S. job market
came Thursday, when the Labor Department reported the largest
one-week jump in initial jobless claims since the aftermath of
superstorm Sandy in November 2012. It is likely only the beginning
of a spike in unemployment filings.
In the weeks after Hurricane Katrina in 2005 and superstorm
Sandy in 2012, jobless claims were highest not during the week of
the storm, but two weeks after. Many who were out of work from the
hurricane waited until the storm had passed to file their
claims.
Compared with the week of the storm, initial jobless claims rose
23% in the second week after superstorm Sandy and 30% in the second
week after Hurricane Katrina.
"Irma's right behind Harvey, so that could cause claims to spike
again," said Ryan Sweet, director of real-time economics at Moody's
Analytics.
Inflation
Measures of inflation will soon reflect Harvey's impact, with
gasoline prices spiking due to disruptions to oil refineries in the
Houston area. The national average gas price was $2.66 a gallon on
Wednesday, according to the AAA, up from $2.35 a month ago.
Denton Cinquegrana, chief oil analyst of Oil Price Information
Service, sees gas prices peaking near $2.75 before leveling
off.
Energy prices make up 7% of the consumer-price index, with motor
fuel accounting for nearly half of that. Already, the move in gas
prices could raise the inflation rate by about 0.5%. With past
major storms, the effect has faded within a few months.
Consumer spending
With gas prices up, consumers across the country will have less
cash for everything else. Every penny increase in gasoline prices
reduces consumer spending by $1 billion over the course of the
year, according to Mr. Sweet of Moody's.
"Consumers are going to feel it in their pocket," Mr. Sweet
said.
Consumer-spending measures may also show the impact of Houston
being shuttered for so long. The city of Houston has nearly three
million workers and produces about $500 billion a year of gross
domestic product.
That is "a non-negligible economic impact, assuming 25% of
Houston area output was idled for seven days," said Gregory Daco,
chief U.S. economist of Oxford Economics.
Housing
Before the storm, Texas was on track for a 14% increase in
housing starts this year, according to James Gaines, chief
economist at the Real Estate Center at Texas A&M
University.
In 2016, Houston alone accounted for about 4% of the nation's
permitted housing. All that activity will grind to a halt as
builders wait for construction sites to dry out, assess the market
and compete for construction workers to rebuild and repair the
city.
Household Wealth
Destruction of homes and businesses doesn't show up in gross
domestic product, but it would show up in measures of household
wealth. A complication from Hurricane Harvey is that many
homeowners and businesses didn't carry flood insurance, meaning
that a large share of the over $100 billion in estimated damage
could reduce household wealth.
"With so many homeowners uninsured, this is more akin to a
wipeout of assets such as one would expect from a stock-market
crash," said Constance Hunter, chief economist for KPMG, the
accounting firm."The effects are more negative and widespread."
But in a $19 trillion economy with 150 million workers, many of
the effects will be hard to tell apart from the usual churning of
such a large nation. Economic indicators can only measure so much
of a storm's effect.
Ultimately, "the impact on individual lives will dwarf the
economic dollar losses," said Lynn Reaser, a former Bank of America
economist who is now a professor at Point Loma Nazarene University
in San Diego.
--Laura Kusisto contributed to this article.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Sarah Chaney
at sarah.chaney@wsj.com
(END) Dow Jones Newswires
September 07, 2017 10:14 ET (14:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.