Economic Impact of Hurricane Harvey and Hurricane Irma

We all probably know what is going on in the United States right now. First Hurricane Harvey in Houston and now Hurricane Irma is approaching Florida. As a business student, I was wondering about the impact of these natural disasters and did some research about the economic and human impact of both Hurricane Harvey and Hurricane Irma.


Costs of Hurricane Harvey and Hurricane Irma

While there will most likely be no significant long-run economic damage from the two hurricanes in the U.S., their current economic damage is indeed significant. AccuWeather¬†predicts that Hurricane Harvey will be the new most expensive natural disaster in U.S. history. In fact, the hurricane will account for 1% of the United States’ GDP, which is equal to $190 billion. There are no estimates for the economic damage of Hurricane Irma yet, as the hurricane is expected to hit Florida within the next 24 hours from the time of publishing this blog post. However, due to Florida’s location and many cities such as Miami attracting millions of tourists every year, Hurricane Irma could deal some great economic damage in the south regions of Florida as well.


Impact on GDP


Overall, economists predict that the U.S. economy will not take a too significant hit from both hurricanes. In fact, a certain patterns is observed before a natural disaster. Right before the two hurricanes hit the U.S., economic activity increased. People are buying everything off the supermarkets’ shelves to prepare for the incoming hurricanes. Water, chipboard, food, and gasoline are very popular products that usually sell out the quickest.

Once the hurricane hits the U.S., economic activity declines. Obviously, it interrupts commerce as businesses are closed or even destroyed, roads are blocked, and supermarkets are out of stock. Due to this supply shortage, prices tend to increase. One good example of this short inflation is the gas price. According to AAA, the average national gas price went up by 27 cents and is now at a two-year high of $2.65. Hamish McRae reports in an articles for The Independent, that Hurricane Harvey’s impact on gas prices is even noticeable in the United Kingdom. In fact, the UK’s gas prices are expected to increase by 4p (equals 5 cent).


New York Fed President William Dudley said in an CNBC interview, that the U.S. economy will actually benefit in the long-run from Hurricane Harvey and Hurricane Irma. After a period of decreased economic activity and after surpassing the first weeks of shock, economic activity increases. Damaged houses and buildings have to be rebuild, streets have to be cleaned, and infrastructure has to be re-established again. This gives opportunity for new jobs and economic activity increases.

In an FOX Business article, economists estimate that the hurricanes’ short-term economic impacts will cause the GDP’s growth rate to decline by 0.3% in the third quarter of 2017. The natural disaster will already have no effect on GDP’s growth rate of the fourth quarter of 2017 anymore. As the economy recovers and reconstruction efforts start, economists predict a 0.2% GDP growth rate increase in the first quarter of 2018 due to the increased economic activity.


Human Toll of Hurricane Harvey and Hurricane Irma

While the economic costs of both Hurricane Harvey and Hurricane Irma will self-regulate themselves at the beginning of 2018, the human toils will be more far-reaching. As Michael Feroli correctly states: “Economic growth does not always correspond with economic well-being.” Many people have lost their homes. Some have even lost a family member or a close friend. Not to think about all their personal memories and belongings destroyed by either one of the two hurricanes. The human burden of the hurricanes is way more significant than the economic impact. For the next months, those people affected by the hurricane will only have temporary homes and will have less money available as all their savings will go into reconstruction. Furthermore, it can be expected that taxpayers will mainly finance the state’s reconstruction.

Dan North, chief economist for Euler Hermes, predicts in a CNN article, that because of the wealth destruction from both hurricanes, it is unlikely that the Federal Reserve will increase interest rates for a third time this year. It would only cause more stress in the economy as it is already.


The lesson is clear: Hurricane Harvey and Hurricane Irma will have no substantial economic impact. While economic activity will decrease in the short-run and can cause some short-run inflation, the U.S. economy will just as fast recover and get back to normal. However, the human toll from both hurricanes is more significant and some damage is unrepairable.


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