The Economic Aftermath of Hurricanes Katrina and Rita: An Assessment After One Year

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The Economic Aftermath of Hurricanes Katrina and
Rita An Assessment After One Year
Presentation to 36th Annual Conference of the
RSAI-British and Irish Section Jersey, Channel
Islands Dr. Bernard L. Weinstein Director, Center
for Economic Development and Research University
of North Texas (USA) August 2006
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Gulf of Mexico
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Hurricane Katrina
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Hurricane Katrina
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Hurricane Katrina
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Path of Hurricane Katrina
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Projected Path of Hurricane Katrina
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Hurricane Rita
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Hurricane Rita
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Path of Hurricane Rita
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Oil Production/Rita
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Assessing Damage to Homes in New Orleans
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What Katrina Did
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New Orleans
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New Orleans
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New Orleans
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Wreckage of Treasure Island Casino in Biloxi, MS
- Spring 2006
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Street View of Biloxi, MS Spring 2006
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Katrina and RitaThe Human Cost
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Earth, wind and fire
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Katrina and RitaEconomic Loss ( billions)
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Who will Make up the 265 Billion Difference?

• Philanthropy - 65 billion
• Federal Government - 200 billion
• Infrastructure repair
• Temporary financial assistance to displaced
  persons
• Disaster loans

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Flood Insurance in New Orleans
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Industrial Impacts

• Energy production in Gulf of Mexico
• Temporary loss of 90 of crude oil output (2 of
  global supply)
• Temporary loss of 70 of natural gas production
• 12 refineries shutdown (10 of U.S. capacity)
• Shipping/Logistics
• Port of New Orleans closed for weeks
• U.S. inland waterway traffic disrupted (grain and
  timber)

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Industrial Impacts (contd)

• Fishing and agriculture
• Loss of 40 of sugar cane crop
• Some loss of rice production
• Long-term damage to oyster beds
• Shrimping industry decimated (90 imports before
  disasters)

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Industrial Impacts (contd)

• Hospitality and gaming
• Short and long-term loss of convention business
  in New Orleans
• Temporary interruption of gaming activity in
  Mississippi
• Small businesses
• All businesses closed for some time
• Many will never reopen

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Fiscal Impacts on Louisiana, Mississippi, and
Texas

• Louisiana
• Lost 15 of its sales, income, and ad valorem tax
  base (5 billion annual revenue loss)
• New Orleans has dismissed half of its municipal
  work force
• Mississippi
• Lost 25 of its tax base
• Already poorest state in U.S. with per capita
  income 30 below national average

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Fiscal Impacts on Louisiana, Mississippi, and
Texas (contd)

• Texas
• Minor loss to tax base
• Primary destination for evacuees 200,000 (many
  will likely stay)
• 1 billion estimated annual cost to state and
  local governments for providing education and
  healthcare to evacuees
• Concern with federal reimbursement
• Stealing business from Louisiana and Mississippi

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Macroeconomic Impacts of Katrina and Rita in the
U.S.

• Higher energy prices
• Gasoline prices about 40 higher in fall 2005
  now 30 higher
• Natural gas prices up from 5 per mcf to nearly
  14 per mcf now about 8
• Utility bills have risen significantly
• Less disposable income for households

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Macroeconomic Impacts of Katrina and Rita in the
U.S. (contd)

• Overall inflation
• Producer and consumer prices rising at double the
  rate of one year ago.
• Transportation costs and prices for building
  materials much higher.
• Because of rising inflation, Federal Reserve has
  boosted interest rates by 275 basis points in
  past two years.

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Macroeconomic Impacts of Katrina and Rita in the
U.S. (contd)

• Output/GDP
• GDP growth has been strong for several years
  about 4.1 in mid-2005 now 2.1.
• Personal income dipped in August but came back
  quickly.
• Huge stimulus from spending on rebuilding of
  housing and public infrastructure over the next
  several years.
• Replacing Gulf Coasts damaged physical capital
  with more up-to-date facilities may improve the
  regions competitiveness in long-run.

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Macroeconomic Impacts of Katrina and Rita in the
U.S. (contd)

• Impact on federal budget deficit
• Post-Katrina/Rita spending will further widen the
  deficit in fact deficit has shrunk.
• Assumption that most of the cost will be financed
  through borrowing.
• Widening trade gap since Katrina and Rita.

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Global Impacts from Katrina and Rita

• Higher oil prices
• Little global excess capacity.
• Katrina and Rita helped push the market to a
  permanently higher price level.
• Insurance premiums for energy companies operating
  on the Gulf Coast have jumped 300 to 400 in the
  aftermath of the hurricanes these costs will be
  passed on to consumers worldwide.

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Global Impacts from Katrina and Rita (contd)

• Financial markets
• Some finance ministers worry that higher energy
  prices could have destabilizing impact on
  fast-growing, emerging economies (like India)
• Hurricanes Katrina, Rita, and Wilma resulted in
  80 billion of losses to global insurance and
  reinsurance companies

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Katrina Diaspora
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Storm-Tossed Population
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Gone with the Winds
A look at estimated population changes in
selected Gulf Coast counties and parishes between
July 1 and Jan. 1
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Many Displaced by Katrina are Jobless
More than half of the Katrina evacuees still
living in Texas dont have jobs, and almost half
live in households with incomes of less than 500
a month, according to a state-funded survey.

• A quarter of a million Katrina evacuees live in
  Texas.
• 41 percent report household income of less than
  500 per month.
• 81 percent are black.
• 59 percent are jobless.
• Most have at least one child at home, and many
  have serious health issues.

Source Texas Education Agency and Texas
Workforce Commission, August 2006
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Storm Aid Crimes
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Barrier Repairs
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New Orleans London Avenue Canal
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Rebuilding Progress
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Katrina Aid Applications
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New Orleans-Fewer Loans in Poor Areas
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Signs of Recovery
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Proposal for rebuilding New Orleans