Slow Ride: The Stages of Post-Hurricane Recovery

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1 January August The Follow Stages on head of Post-Hurricane on Master page Recovery A October 2017 Slow Ride: The Stages of Post-Hurricane Recovery By Devin McGinley IBISWorld projects the flow of recovery throughout various sectors of the economy, both locally and for the nation as a whole. Seasonal business that cannot be easily recovered will experience the worst losses The hurricanes that have battered the US Southeast and Gulf Coast over the past two months have resulted in extensive damage, both human and economic. Hurricane Harvey, which made landfall in South Texas on August 25, and Hurricane Irma, which hit Florida two weeks later, have resulted in combined property damage ranging from $150.0 to $200.0 billion, according to preliminary estimates from Moody s Analytics. This puts 2017 on par with some of the worst hurricane seasons of the past two decades, which featured such destructive storms as Hurricanes Katrina and Sandy. Recovery will continue in the affected regions for many months and will be shaped by their local economies. However, the industry impacts of the recovery will likely follow a broad pattern familiar from past storms. Short-term: Accommodations, foodservices and retail In the immediate aftermath of a storm, economic damage results not just from property destruction but also from business disruptions, with power outages, facility damage and flooded roads inhibiting activity in every sector of the local economy. New unemployment claims, a proxy for the extent of this short-term disruption, typically surge in the weeks following the storm. In most sectors, however, disruptions are shortterm. After Sandy, for example, 80.0% of affected businesses reopened within two weeks. Businesses in the manufacturing and transportation sectors suffered disruptions, but recouped much of their losses by increasing their output and fulfilling backorders as the recovery progressed. Industries in the foodservice and accommodation sector, by contrast, suffered the brunt of the damage, with losses totaling more than $500.0 million in Sandy s wake, according to Department of Commerce estimates. Hurricanes tend to hit coastal areas during the peak of their tourism seasons, depriving businesses in industries such as Hotels and Motels (IBISWorld report 72111), Single-Location Full- Service Restaurants (72211b) and Bars and Nightclubs (72241) of one-time traveler expenditures that cannot be easily recovered. Moreover, short-term spikes in unemployment dent disposable incomes in affected areas and dampen local spending on entertainment and recreation industries. The retail sector will likely experience a similar dip in consumer expenditure in the wake of these hurricanes due to short-term employment disruptions. Similar to the foodservice and info@ibisworld.com

2 August accommodation sector, seasonal business that cannot as easily be recovered will cause the worst losses. Given the timing of 2017 s major storms, the hardesthit retailers may be those that benefit from back-to-school spending, such as Department Stores (IBISWorld report 45211) and Consumer Electronics Stores (44311). Lost business for these industries will be particularly painful because their sales have already been in decline; according to IBISWorld estimates, department stores in Texas have already experienced an annualized revenue decline of 2.9% over the past five years (IBISWorld report TX45211). However, another area of the retail sector is anticipated to benefit relatively quickly from the recovery: the New Car Dealers (44111) and Used Car Dealers (44112) industries are likely to experience shortterm sales spikes to replace vehicles lost in the storm, which will be covered largely by private insurance. According to estimates from Cox Enterprises, between 500,000 and 900,000 vehicles were likely lost during Harvey and Irma, surpassing the totals from Katrina (250,000) and Sandy (200,000). Medium-term: Construction In the overall economy, the short-term losses in the immediate aftermath of a major storm are largely offset by construction-sector growth that occurs over the medium term. The construction recovery following other recent hurricanes began about five to six months after the storm. This reflects the timing of insurance reimbursements and federal aid, as well as the usual seasonality of construction trends, and appears in data on construction-related employment from the Bureau of Labor Statistics. From April to November 2013, a period beginning six months after Hurricane Sandy, construction jobs in New Jersey increased 7.1% year over year, compared with 4.4% growth elsewhere in the Jobless Claims in Hurricane-Affected States Initial unemployment claims (thousand) Hurricane Katrina Hurricane Sandy Hurricane Harvey Storm Weeks before, during and after the storm Source: US Department of Labor nation. In 2006, the year after Hurricane Katrina, the construction recovery lasted longer in Louisiana, where it grew 9.8%, compared with 4.5% growth in other states during the same period. Property damage estimates for Hurricane Harvey have generally been in the middle of the estimates for these storms, after accounting for inflation. Most of the construction sector will experience growth during the recovery period, but it will likely be particularly focused in specialized trades and infrastructure-centric industries. In the post-katrina recovery period, 48.6% of job growth occurred among specialty contractors, which include industries such as Roofing Contractors (IBISWorld report 23816), Electricians (23821) and Carpenters (23835); meanwhile, 34.0% of job growth occurred among civil and heavy engineering industries such as Water and Sewer Line Construction (23711), Transmission Line Construction (23713) and Road and Highway Construction (23731a). Infrastructurerelated industries experience the recovery first, as federal and local governments take up the immediate task of restoring normalcy to affected areas. Specialized contractors take part in the recovery later, when homeowners use insurance reimbursements to make

3 August repairs. Given the surge in demand for skilled construction workers in the aftermath of a hurricane, labor shortages can also be common, pushing up repair prices and delaying the recovery somewhat. This issue may not be as prevalent in Houston post-harvey, given the region s robust housing market. National and long-term impacts Consumers nationwide can feel the impact of a storm when an industry is concentrated in the impacted region, as is the case with petroleum refining in the Texas Gulf area. An estimated 44.0% of revenue in the Petroleum Refining industry (IBISWorld report 32411) is generated in Texas, and within the state, this activity is concentrated in areas affected by Harvey. As refinery capacity went offline in the storm s aftermath, nationwide gas prices rose 13.2%, according to the Energy Information Administration, peaking two weeks later. Retail gas prices have since begun to gradually fall, but as of mid-october, remained well above their pre-storm averages. In some parts of the South more directly supplied by Texas, gas prices increased even more substantially. This may provide a shortterm opportunity to refiners in other regions, if they are able to expand their output to take advantage of higher prices. However, this will likely have a ripple effect on consumer spending beyond the region, given the strong negative correlation between gas prices and other discretionary consumer expenditures. The national industry most susceptible to damage from Irma is Orange and Citrus Groves (IBISWorld report 11134), which generates an estimated 40.5% of its revenue in Florida. According to the Florida Fruit and Vegetable Association, as much as 50.0% to 70.0% of South Florida citrus crops could be lost, with damage easing only slightly in groves toward the north. The storm hit at a particularly sensitive time, just ahead of INDUSTRY RECOVERY TIMELINES IN THE WAKE OF HURRICANES HARVEY AND IRMA SHORT-TERM Hotels and Motels Consumer Electronics Stores Bars and Nightclubs New and Used Car Dealers Single-Location Full-Service Restaurants Department Stores MEDIUM-TERM Roofing Contractors Carpenters Transmission Line Construction Electricians Water and Sewer Line Construction Road and Highway Construction LONG-TERM AND NATIONAL Orange and Citrus Groves Juice Production Petroleum Refining Based on IBISWorld estimates

4 August About IBISWorld Inc. Recognized as the nation s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit or call a harvest beginning in November. Most Florida oranges are used by downstream processors, so costs will likely rise for industries such as Juice Production (31211c). Given Florida s large role in citrus production and the extensive damage to groves, prices are expected to stay elevated beyond the current season as producers undertake the long work of nurturing replacements for their downed trees. Although the human toll of the 2017 hurricane season will be deep and longer-lasting, the net economic impact will be minimal on a national scale. Most analysts expect a slight dip in GDP growth during the third quarter of 2017 due to the initial economic disruption of the storms, but this will be offset by a boost in growth in early 2018, when these recoveries truly take hold. Contact: Media Relations media@ibisworld.com IBISWorld Sales & Subscriptions Phone:

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