Harvey May Be "Costliest Natural Disaster In US History" With $190 Billion Price Tag

Tropical Storm Harvey made its second landfall near Cameron, La. on Wednesday after slamming Houston with a staggering 50 inches of rain, the largest rainfall ever recorded in the Continental US. Given the unprecedented devastation, which will likely leave large swaths of Houston, America’s fourth-largest city, uninhabitable for weeks if not months, storm-watchers have scrambled to revise their initial forecasts for damages. Initially, the consensus projection was somewhere around $40 billion, with Moody’s forecast that property damage caused by the storm would total between $30 billion and $40 billion.

If accurate, that would leave Harvey as the fourth-most expensive hurricane in US history, after Hurricane Andrew (1992), Superstorm Sandy (2012) and Hurricane Katrina (2005). However, after five days of torrential rains, one forecaster believes the $30-$40 billion figure would barely cover a quarter of the damage.

Dr. Joel N. Myers, founder, president and chairman of AccuWeather, now believes Harvey could become the costliest natural disaster in US history, ultimately costing the US economy an eye-popping $190 billion in property damage and lost productivity once the "total destruction is completed." Such an astronomical price tag would be more than the combined costs of Hurricanes Katrina and Sandy, he said.

Here’s USA Today:

“Hurricane Harvey could be the costliest natural disaster in U.S. history with a potential price tag of $190 billion, according to a preliminary estimate from private weather firm AccuWeather.

 

This is equal to the combined cost of Hurricanes Katrina and Sandy, and represents a 0.8% economic hit to the gross national product, AccuWeather said.

 

‘Parts of Houston, the United States' fourth largest city, will be uninhabitable for weeks and possibly months due to water damage, mold, disease-ridden water and all that will follow this 1,000-year flood,’ said AccuWeather president Joel Myers.”

While many analysts are focused on southwest Texas and western Louisiana, Myers warned that Harvey could continue to inflict severe damage even after being downgraded to a tropical depression – which is expected Wednesday – the storm will continue to dump as much as 10 inches of rain on the Mississippi Valley.

“Though Harvey will slowly weaken into a depression as it tracks inland, it will still produce more rain – 3 to 6 inches from southwestern Louisiana up along the Arkansas/Mississippi border and into western Tennessee/Kentucky through Friday. Some areas could see as much as 10 inches of rain.

 

Flash flood watches are in effect for much of the Mississippi Valley due to the heavy rain threat.

 

‘AccuWeather cautions that the negative impact from the storms are far from over. There will be more flooding, damage, fatalities and injuries,’ Myers said. ‘We urge all citizens near the path of Hurricane Harvey to remain vigilant and be prepared to take immediate action if flood waters rise.’”

Accuweather isn’t the only firm forecasting damages that’re much higher than the national average. Risk Management Solutions believes the total economic loss could be somewhere between $70 and $90 billion.

While property damage is expected to account for a sizable chunk of this cost, some sell side analysts believe the storm could ultimately have a postive impact on GDP if it triggers a construction boom, which would be positive for GDP. Sell-side research analysts have offered conflicting views. So far, Citigroup and Goldman Sachs expect storm-related productivity losses will lead to a net negative impact on Q3 GDP, while. J.P. Morgan, meanwhile, predicts that the post-storm rebuilding will boost GDP in Q3 and Q4. Of course, the size of said boom will probably depend on how much money Congress earmarks for federal assistance. Trump, who has promised to swiftly pass an aid bill, is shaping up for a battle with Congress over the legislation as some conservative lawmakers will likely ask that any additional spending be offset by cuts elsewhere.

But with an estimated 30,000 Texans staying in shelters because of the storm, Goldman's Jan Hatzius, Goldman's chief economist, that due to the human tragedy from Hurricane Harvey, the odds of a govenment shutdown happening during the coming weeks have been again reduced back to Goldman's original estimate of 33%.

The Wall Street Journal appears to agree with JPM.

“Even the largest storms have typically not permanently damaged the U.S. economy. This is in part because storm often spark construction booms that employ tens of thousands of people to clean up and rebuild.

 

Gross domestic product, the main yardstick of economic growth, doesn’t account for property damage but it does account for rebuilding, so the measure can climb after storms due to activity involved in rebuilding.”

Harvey will also impact the economy in other less obvious ways.

“Other economic measures could be skewed in the weeks ahead. The initial weeks after similarly large storms have sometimes produced rising claims by waylaid workers for unemployment insurance. After Hurricane Katrina, for example, jobless claims climbed by over 100,000 per week, although the high-level of claims didn’t persist.”

FEMA Administrator Brock Long has said that Harvey will be “unfathomably expensive for both the private sector and taxpayers.” If Moody’s forecast is accurate, Harvey will cement its position as the fourth-most costly storm in US history behind Hurricane Andrew, which ravaged Florida in 1992.

Since the storm first struck Friday night, damage estimates have been in a state of flux. On Tuesday morning, disaster analyst Chuck Watson had pegged $42 billion as a reasonable estimate for the cost of destruction Tropical Storm Harvey would leave in its wake.

By the end of the day, he’d added another $10 billion.

To be sure, with rains expected to pummel Texas for the next few days, any estimate of the storm’s final total will likely be premature. One twitter user, a purported environmental engineer and Houston resident, believes damages could exceed $500 billion.

If accurate, JPM’s construction-boom thesis might not be far from the mark. Though, at that point, US insurers would likely begin to experience significant stress.