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Is Hurricanes’ Impact Beginning to Ripple Through to Economic Data?

September 20, 2017
Hurricane Economic Ripple Effect
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Massive natural disasters like Hurricanes Harvey and Irma take relatively little time to devastate entire cities; recovering and rebuilding of course takes a very long time—months and years.

It also takes time to ascertain how such wide-scale disruptions might ripple through the U.S. economy. People who lost their homes will need many things: housing, food, electricity, transportation, education services and more.

The companies that provide those services bear watching, as do certain gauges that could shed light on how significantly the storms affected the country’s economic activity, and how quickly we recover. Some market experts recommend keeping an eye on the following:

Home Supply Retailers and Home Builders

Initial market impact from major storms is often reflected in shares of major home-supply stores, says JJ Kinahan, chief market strategist at TD Ameritrade. “They sometimes get the first pop because people go there and spend money to get their homes rebuilt,” he says. Another related factor: pre-sales of generators by the home suppliers.

Home construction companies, already strong this year, may see further upside. On September 12, the S&P Homebuilders Select Industry Index (SPSIHO) reached its highest level in at least 10 years, and is up about 14% so far in 2017, according to S&P Dow Jones Indices.

Insurance Companies

Shares of insurers often tumble as major storms hits the U.S. amid expectations multi-billion claims will crimp profits—but then recover if damage isn’t as bad as feared, Kinahan says.

On September 7, the S&P Insurance Select Industry Index (SPSIINS) fell to a seven-month low before bouncing back, and is still up over 6% this year.

Automobiles and Manufacturing

Because many flood insurance policies don’t cover automobile replacement, people in hurricane-stricken areas may be on the market soon for replacement cars, Kinahan says. Watch monthly sales reports from the major automakers in the months of ahead.

Educational Services

Schools may be closed for weeks or months, potentially boosting demand for businesses that serve the education market—mobile classrooms, for example, or education software.

Temporary Lodging

The extended stay and lower-end hotel sector—think “suite” options—may see a hurricane-related influx as people seek a place to hang their hats while their homes are rebuilt.

Broader Economic Impact: GDP

Similarly severe Hurricanes, such as Katrina in 2005, were followed by a temporary slip in GDP in the fourth quarter, then a rebound in the following quarter as the economy shook off the storm’s impact.

In the quarter before Katrina hit, U.S. GDP grew 3.8%, then fell to 1.3% growth in the October-December quarter. In the first quarter of 2006, GDP jumped 4.8% (Katrina is the costliest natural disaster in U.S. history at $160 billion in today’s dollars, according to the National Oceanic and Atmospheric Administration).

Goldman Sachs recently projected GDP growth in the current quarter at 2%, down 0.8 percentage points from the bank's previous forecast, according to news reports. Goldman also estimated the total damage from Harvey and Irma at $115 billion.

“In the short-term, GDP may take a little hit” from Harvey and Irma, but in the long-term, “it could help, because people are spending money” as part of rebuilding, Kinahan says.

Retail Sales

In 2005, retail sales nationwide dipped slightly in September and October before climbing the final two months of the year, and for the year rose over 6% from 2004, according to Commerce Department data. However, discerning any disaster-related patterns from broad economic numbers can be tricky, considering season factors, such as the holidays.

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