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Following the recent disasters that hit the US mainland, Finance Monthly reached out to Nalanda Matia, Lead Economist at Dun & Bradstreet, to gather thoughts on the overall impact felt by supply chains throughout the various industries, regions and markets.

Mother Nature hasn’t been kind to the United States in the past month or so; Hurricane Harvey left a trail of destruction on several counties in Texas, while Hurricane Irma devastated parts of the Sunshine State, most notably The Keys. The stormy season doesn’t look like it will abate anytime soon. The market impacts of these natural disasters are significant, particularly on densely populated and urban cities.

While the financial repercussions of Irma are still being counted, let’s take a closer look at the impact of Harvey, including affected industries, the supply chain and the future outlook of the affected areas.

Impacted industries

Early estimates have placed the impact of Category 4 Hurricane Harvey at around $75 billion, with losses from insured and uninsured residential and commercial properties making up the majority. With the addition of other costs associated with business interruptions, lapses in employment gains, and additional flooding or damage to contents of the properties, the toll could be much higher.

The top industries in the state with the largest number of jobs that have been potentially impacted by the hurricane are services; manufacturing; wholesale and retail trade; mining; construction; finance, insurance, & real estate and agriculture, forestry & fishing.

Supply chain concerns

The disruption in energy exports and other supply chain activities as ports in the state remained closed to vessel traffic until floodwater damage was assessed affected consumers and trade, creating build-ups and delays.

Many industry supply chains will take a hit as the transportation industry looks to get business back to normal. The Houston area in particular accommodates several major airports with flights to more than 70 international destinations. With some of these airports closed for a few days, the air transportation sector faced considerable backlog that they’re still coping with today.

Waterborne transportation is also in crisis due to the closure for several days of all major ports in the Houston and Corpus Christi areas. Large container ships headed to Houston to load cargo were stranded or diverted to nearby ports to wait out the storm and port closures. This caused severe supply chain disruptions in both parts of the United States and internationally. Based on the diverse nature of cargo that goes through the Houston area ports, the supply chain interruptions were not just limited to energy or chemicals, but extended to other commodities, such as agricultural products.

Business and economic impact

The parts of the United States affected by Hurricane Harvey have relatively high populations and are economically developed areas, which has contributed to high economic losses, perhaps one of the highest economic costs incurred due to a natural disaster in the US. With thousands of businesses and their employees stricken, the economic outlook for the region as a whole is expected to be lacklustre, but this prognosis may be true only in the short term.

Looking more closely at what businesses were affected, the vast majority were micro and small businesses with fewer than 10 and fewer than 100 employees, respectively. Also, close to 40% of the affected businesses are fairly young – within the first five years of their life cycles.

According to our estimates, the county of Harris, TX seems to have undergone the maximum disruption as far as the number of affected businesses are concerned. The county contains more than 60% of the businesses that have been declared at risk.

What to expect from Irma

While Irma seems to have been a slightly stronger storm in terms of wind, its financial impacts – without diminishing its severity – might be slightly less than Hurricane Harvey’s. Dun & Bradstreet estimates over two million businesses to have been in the monster hurricane’s path. This includes 49 counties in FL, three in Georgia, four in PR and two in Virginia that have been declared as disaster regions by FEMA.

Early estimates regarding these businesses are that nearly 60% of the jobs affected are in Services and Retail – with the affected regions in scenic and tourist-frequented areas. Pre-Irma, about 12% of the businesses located in the path of the storm were in the riskiest class of the Dun & Bradstreet Delinquency Predictor score. Because of the hurricane, these businesses, which were already at risk of becoming severely delinquent, will have an increasingly difficult time meeting their obligations.

Early estimates put the damage from Hurricane Irma in Florida and the surrounding areas at closer to $50bn, but the exact number is hard to predict exactly at this stage. As the southern coastal states count the cost of these disasters, we envisage a number of months until all services, transportation systems, supply chains and the economy are back to normal.

Although these current disasters are not expected to leave a permanent imprint on the economy of the United States, the immediate consequences of these increasingly frequent events cannot be ignored.

Between hurricane Harvey and Irma, states in the US have been truly ravaged by disaster. The effects of destruction have now left long lasting marks on local economies and the performance of markets, among many other things.

OPEC, for example, was severely impacted by the hurricanes, as we saw demand pitfall despite continued production and refining. Goldman Sachs stated that both Harvey and Irma will leave a huge dent in the oil market, leading to a global reduction in consumption of oil by 600,000 bpd in September.

We asked Finance Monthly’s expert contacts what they made of the situation, and have heard Your Thoughts on the overall impact of hurricanes on oil markets and beyond.

Nathan Sage, Market Analyst, PhillipCapital UK:

Hurricane Harvey was one of the biggest storms to hit the gulf coast in a decade with the total damages now estimated at upwards of $180 billion. The category four storm made landfall in Texas as it peaked in intensity and now holds the record for the wettest tropical cyclone to hit mainland US states. The significance of its landing is important as Texas and States along the gulf coast are a major refining point of crude oil and are responsible for around 12% of the country’s refining capacity.

Before Harvey hit, traders were already nervous, and crude, both Brent and West Texas Intermediate, ground lower until dropping as Harvey made landfall. The major moves were in the markets for distillates especially in the gasoline market which gained over 16% as fears of a fuel shortage spread across the state and surrounding areas.

The low of oil was a good buying opportunity for traders as the drop in refining would ultimately lead to higher inventories but the lasting effect of the rise would only be temporary for traders with a moderate outlook. Brent and WTI have both added 3.74% this week and 7.5% since its low last week. The short term effects of Harvey have already been seen in the data with initial jobless claims rising 62,000 in the week to September 2nd totalling 298,000 way above the expected 245,000.

The lasting effects of Harvey from the oil industry’s point of view has now largely worn off with pipelines and refineries coming back online earlier this week and business is mostly back to normal. In the same breath, traders will now be focussing on Hurricane Irma which has already devastated most of the Caribbean and is expected to make landfall this Sunday. Florida has less of a significate for oil markets but insurance companies will weigh on US stock markets as the costs from both Harvey and Irma start to mount. The full extent of the losses are yet to be seen but some are expecting the most Harvey-exposed insurers to take an earnings hit of around 25-30%. It’s no surprise that heading into the weekend risk appetite has waned and we can see US markets edging lower on the open.

Longer term and away from the storms, the overarching themes in oil markets remain focused on the global supply glut. Russian finance minister Anton Siluanov has said that Russia would benefit from extending its agreement with OPEC to limit global supply and said the benefits would extend to “everyone involved”. Without an extension of the agreement and if the world’s largest oil producers were to have full autonomy on their own output it would likely lead to a huge correction lower in prices. This would be especially true, as the recent higher oil price has allowed shale producers to become more efficient and are now able to operate at a lower breakeven point than before.

Fiona Cincotta, Senior Market Analyst, City Index:

The markets are breathing a sigh of relief as the trail of devastation left by Hurricane Irma was not quite as bad as was initially feared. Whilst Florida is still receiving a pounding from the now Category one storm, notably Miami managed to dodge the most dangerous part of the storm. So far news of catastrophic damage hasn’t come through, which is a promising sign that the markets are focusing on.

As a result of the severe but not catastrophic Hurricane Irma the dollar index enjoyed its biggest 1 day jump in 10 days, gaining 0.5% versus a basket of currencies. Meanwhile the Dow Jones futures surged over 100 points, whilst the S&P 500 futures were also pointing to a positive start for the index.

The markets were on edge in the days leading up to the hurricane given the difficulty in assessing the financial impact of natural disasters. However, although the initial assessment is that the impact of the storm is not as bad as first feared, we still expect some evidence of economic damage from this hurricane and hurricane Harvey to feed through to the economy in the form of weaker economic data such as labour market numbers, economic growth and retail sales. Therefore, investors will be paying particular attention to Thursday’s retail sales numbers. Significantly weaker than expected data could weigh heavily on sentiment.

The other point to keep in mind is that the economic impact of hurricanes tends to be short lived and often the rebuilding effort offsets the damage the hurricane caused to the economy. Therefore, if economic data is slightly weaker, this should only be a blip rather than the start of a new trend. Federal Reserve Official Dudley confirmed this last week by saying that he didn’t expect the outcome of Hurricane Irma to impact on the monetary policy outlook.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Only 12% of homeowners in the US had flood insurance in 2016. For every one inch of flood, it could cost a homeowner $20,000 in damages. Here’s how flood insurance works, the average cost and if it’s too late to get covered.

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