US: Harvey generates some economic uncertainty - AmpGFX

Economists are now doing their sums on the impact of Hurricane Harvey on US GDP growth as strategists will be comparing the current market response to similar historic episodes, according to Greg Gibbs, Analyst at Amplifying Global FX Capital Pty Ltd.

Key Quotes

“The event will cause some degree of weaker national economic growth in Q3.  But this will fade and turn into, potentially, catch-up growth in Q4 and into H1 next year.  The disruption phase will depend on how long it takes for water inundation to recede and allow the affected communities to begin the recovery.  Insurance claims will have to be made and paid to facilitate the repair/ replace/ reconstruction phase.”

“The events are largely localised, but higher gasoline prices or shortages could spread the disruption nationally.”

“Gasoline September futures prices are up 13.5% in the last week.  This is significant and might be expected to have some dampening impact on consumer spending nationally.  However, the futures market shows that the price spike is not expected to remain for more than two to three months.”

“Concern over oil refining supply disruption and the degree of disruption to the economy may not have peaked yet, with gasoline futures prices yet to clearly peak and news reports discussing uncertainty over the degree and time of flooding.”

“About 2 million barrels a day of refining capacity—about 10% of the nation’s overall refining capacity—is now offline, according to Moody’s.”

“Moody’s preliminary estimate is that the storm will cause between $30 billion and $40 billion of property damage.”  This suggests that this event is more severe than most storms, but less severe than Katrina (2005; $100bn) and Sandy (2012; 71bn).  But this estimate is initial, and risk appears towards it rising rather than falling, and it’s not clear how much property damage correlates with economic disruption; the key variable is how long the flood waters take to recede.”

“Moody’s estimates thus far that there will be $6 billion to $8 billion in lost output in the weeks ahead. That is barely perceptible in a U.S. economy that produces more than $19 trillion worth of goods and services annually.”

“Prior to the event, recent reports suggest that the US economy had started the second half of the year on a stronger growth path than the first. As at 25 August, The Atlanta Fed GDPNow forecast was at 3.4% for Q3.  As such, the overall economy appears in a solid position to absorb the loss to activity expected in the disaster affected regions.”