Hurricane Harvey unlikely to derail Texas’ positive economic momentum, says Dallas Fed economist

For Immediate Release: September 29, 2017

DALLAS—Hurricane Harvey wreaked havoc on property and infrastructure, but the storm’s negative effects are unlikely to throw the Texas economy off course, according to the Federal Reserve Bank of Dallas’ Texas Economic Update.

“The storm’s negative impact on employment and other business activity is expected to be transitory and should not derail the state’s positive economic momentum,” Dallas Fed Senior Business Economist Laila Assanie said in a video accompanying the report’s release.

Before Harvey made landfall on Aug. 25, state job gains were solid and unemployment was at its lowest level in a decade, according to the report. After the hurricane hit, Texas initial claims for unemployment spiked above 65,000 but have come down since.

“Following Hurricane Ike in 2008, we saw a spike in Texas initial unemployment claims, and they remained elevated for about five weeks,” Assanie said. “Given that the magnitude of the disruption caused by Harvey was larger than Ike, the expectation is that claims will likely remain elevated for a similar or longer period.”

With damage costs estimated at $85 billion and up, Harvey is likely to be one of the costliest U.S. hurricanes—ahead of Sandy and behind Katrina. As the cleanup proceeds, increased tightening of the state labor market may put the squeeze on employers already struggling to find workers.

“With a limited labor pool from which to choose, employers are reporting worker shortages and difficulty hiring,” Assanie said. “Labor demand will increase, particularly in construction, as post-hurricane repair and restoration work gets underway. This will exacerbate labor shortages, pushing up material and labor costs.”

In the longer run, however, the state’s economy should bounce back, according to the report. Dallas Fed analysis of the effect of Hurricane Harvey on employment suggests that jobs will fall sharply in September, by 54,200 to 73,700 on the Gulf Coast and 37,800 to 60,400 statewide. Employment will likely rebound to trend growth along the Gulf Coast by year-end and in Texas in October.

“The long-term impact of Hurricane Harvey is expected to be limited,” Assanie said. “Houston will rebound because of its importance as the energy capital of the U.S. and as a center for business and trade. Other thriving parts of the Gulf Coast affected by the hurricane will gradually recover as well.”

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org