Hurricane Harvey, the Economy and Trump’s Border Wall: What Type of Impact Will This Storm Have?

Tropical Storm Harvey hit Texas as a Category 4 hurricane. At the moment, Hurricane Harvey is expected to be one of the most expensive natural disasters on record. At the same time, it will only temporarily interruprt the larger economy. Currently, economists at organizations such as Goldman Sachs expect it to cause about $30 billion in property damages.

The Economic Impact of Hurricane Harvey

In the past, major hurricanes have been connected with temporary drops in construction spending, retail sales and industrial production. They are also linked to a temporary increase in jobless claims. This is only connected to the short-term economic effects of Hurricane Harvey, so the long-term effects are not known. Generally, the economy returns to its normal trend or higher once rebuilding efforts are under way.

There is a problem with the location of this particular storm though. About 16.4 percent of the American refining capacity has been shut down because of the storm. This means that the energy sector may see a drop in Q3 GDP growth by up to 0.2pp. Hopefully, this effect on the energy sector will be counteracted by the increase in construction activity and replacement spending after the storm. The storm could disrupt exports though, which could lead to up to a 20 basis points decline in GDP growth this quarter.

One thing is probably for certain: jobless claims will spike. At the very least, they will be higher than they would have been otherwise. After the storm, the affected residents will obviously be unable to go to their jobs. People who are temporarily or permanently injured by the storm may sit out of the employment marketplace for an extended time period.

Hurricane Harvey Cuts Into the Nation’s Second-Largest Economy

Texas has a $1.7 trillion economy and one of the fastest growth rates of any state over the last year. Victoria and Corpus Christi both account for about 2 percent of the state’s economic output. Unfortunately, hard-hit Houston is responsible for 31 percent of the state’s output. This matters because the Texas economy is the second largest in the country. Only California has a larger economy. Currently, Texas makes up 9 percent of the United States’ GDP.

The storm is expected to have a $1 billion impact on shopping malls and restaurants that miss out on sales. Gas prices will most likely increase since part of the American energy sector is shut down. Lost wages can also create a burden for families struggling to rebuild following Hurricane Harvey. After Hurricane Katrina, New Orleans lost 95,000 jobs and $2.9 billion in lost wages after the storm. Already, the Federal Emergency Management Agency (FEMA) is planning on being in Houston for years.

Hurricane Harvey and Trump’s Border Wall

As reported in the Washington Post, Hurricane Harvey has not changed President Trump’s threat to shut down the government if lawmakers do not fund his Mexican border wall. In response to Harvey, lawmakers will need to fund billions of dollars in disaster relief and recovery spending. In normal political times, lawmakers would put aside their differences to pass recovery spending following a disaster.

According to Trump, his fiscal agenda is still the priority. He may add the funds for his border wall to the Harvey relief bill in an effort to make his border wall spending easier to pass. To prevent this, Democrats in the House and Senate may announce that any hurricane relief funds be set aside in a standalone bill that is not connected to any other measure. If they do this, then the president may lose his chance to push through his wall funding agenda. If he vetoes a standalone relief bill, he risks alienating southern voters affected by the hurricane.

Immediately, the government has to worry about funding FEMA’s response to the storm. If Congress approves funds for disaster relief before the debt ceiling is increased, it could reduce the amount of time politicians have to avert a debt default. The recovery from Hurricane Harvey is expected to cost tens of billions of dollars, so the $3.5 billion that FEMA currently has on hand just won’t be enough. The question remains: will Congress and the president politcs aside to do what is best for the national economy and Houston?

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