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The Aftermath of Hurricane Florence
Although Hurricane Florence has thankfully passed, the storm has been blamed for more than 30 deaths and disrupted the lives of millions.
Major flooding continues and the threat of pollution is rising. News reports have shown the clear destruction of property and infrastructure in the region, and it will no doubt be a long road to recovery for the impacted communities.
But how does a storm like Florence, or other natural disasters, affect the economy on the whole? It turns out, not all that much. Business obviously
slows during and after natural disasters hit, but rebuilding leads to a boost in local economic activity.
Damage Estimates
Early damage estimates are very rough because further flooding is possible. However, Moody's Analytics has stated property damage from Hurricane Florence is likely to be between $17 and $22 billion. Moody's says
Florence is already among the 10 costliest hurricanes in US history.
Their economists anticipate loss to economic output of $1 to $2 billion, which is just about two-tenths of a percentage point hit to GDP.
For reference,
Hurricanes Harvey (in Texas) and Irma (in Florida) last year sliced US economic growth in the third quarter by about a half-percentage point. Those storms caused a whopping $180 billion in damage.
Economic Toll
Natural disasters like hurricanes destroy lives and personal wealth. Some local economies can be devastated by a storm and bear long-running scars, especially ones plagued by poverty or poor infrastructure. Even so, local devastation typically doesn't hit the national economy. When Katrina hit New Orleans, the broader economy grew at a robust 3.6% annual rate, one of the best quarters in the last expansion.
Economic impact depends in part on where storms hit. For example, Gulf-coast storms threaten to damage our energy infrastructure which can push up fuel prices for households and businesses nationally. Econom
ic might is less concentrated in Florence's path.
Though the imprints of hurricanes on the broader economy are rarely significant, these events can cause mayhem in economic statistics like employment rates, retail sales and manufacturing. This makes it harder for policy makers to spot trends and react accordingly. So while the storm itself might not upend our long-running expansion, economists could be talking about the effects of Florence for months to come.
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Equities finished last week higher with large-cap stocks outperforming their small cap counterparts. Changing sentiment on trade impacted stocks last week. Early in the week, investors worried about the next round of tariffs (
a planned 25% levy on $200 billion of Chinese imports). But by mid-week, stocks began to recover on news that
Treasury Secretary Steven Mnuchin would lead a new round of trade negotiations. The tech-heavy Nasdaq performed well as shares of Apple rose after their latest product launch.
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> Inflation:
US consumer prices rose less than expected in August as increases in gasoline and rents were offset by declines in healthcare and apparel costs. The Consumer Price Index (CPI) rose only 0.2% in August, and Core CPI (which excludes the more volatile food and energy components) only rose 0.1% for the month. Year-over-year rates are 2.7% overall and 2.2% for the core.
> Producer Prices:
The Bureau of Labor Statistics also reported last week that US producer prices unexpectedly fell in August, recording their first drop in 1-1/2 years. Headline producer prices edged 0.1% lower in August as did the core reading. Risks over inflation appear to be concentrated in the labor market and not the general economy, at least, not yet.
> Optimism in Small Business:
The Small Business Optimism Index rose 0.9 points in August to 108.8, a new record in the survey's 45-year history. The index, compiled from survey results of National Federation of Independent Business (NFIB) members, was driven higher by respondents' plans to increase inventories, make capital outlays, and increase employment. This optimism has been reflected in the small cap equity index with the Russell 2000 returning over 12% so far this year.
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We invite you to mark your calendar for our upcoming Strategic Discussions luncheon:
Tuesday, October 23, 2018
Costa Mesa, California
More details to follow soon!
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we have access to institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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