U.S. Economic Outlook Slashed for Third Quarter
The Federal Reserve does not think the devastating effects of Hurricane Irma and Hurricane Maria will have a long-lasting influence on the U.S. economy. But when it comes to the near term, Irma and Maria are expected to have a huge impact on U.S. gross domestic product (GDP) growth.
In late August, Hurricane Harvey pounded Texas and Louisiana, with damage pegged at around $180.0 billion.1
A couple weeks later, Hurricane Irma slammed the Caribbean and wreaked havoc in Florida. The total cost of Hurricane Irma could be as high as $300.0 billion. Insurance firms could be liable for between $100.0 billion and $150.0 billion.2
In late September, Hurricane Maria flattened Puerto Rico and left the island without food, water, or electricity. In fact, it could take as six months for the entire tiny island to get its electricity grid up and running. The total cost of Hurricane Maria to the commonwealth of Puerto Rico is pegged at $45.0 billion to $95.0 billion.3
The massive damage to agriculture, businesses, homes, property, infrastructure, and tourism has caused many economists to reduce their third-quarter GDP outlook for the U.S. economy. Oxford Economics trimmed its third-quarter GDP outlook by 0.4 percentage points on the low end of the range, with Goldman Sachs shaving 0.8 percentage points on the high end.
Most economists see the biggest hit coming from Hurricane Harvey with only modest reduction of 0.1 or 0.2 points from Hurricane Irma.
Before the impact of Hurricanes Harvey and Irma, the U.S. economy was showing signs of sustainable growth. In fact, many expected the U.S. economy to advance as much as three percent in the third quarter. But after Hurricane Harvey and Hurricane Irma, Goldman Sachs’ 0.8% trim brings U.S. third-quarter GDP estimate down to around two percent. The forecast from Macroeconomic Advisors has been cut by 0.7 percentage points, bringing third-quarter U.S. GDP estimates down to 2.3%.
What will happen in the fourth quarter remains to be seen. But many economists think U.S. fourth-quarter GDP could get a boost as rebuilding begins. Some sectors are expected to perform better than others though.
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Natural disasters can seriously impact the economy and GDP on both a state and national level. The short-term damage is expected to be severe with regards to the U.S. economy and GDP growth in the third quarter. Longer-term, though, recovery spending could lead to higher output and GDP growth. They key is knowing how those sectors and industries will perform at different times. The trading professionals at Learn-To-Trade.com
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- “Hurricane Harvey Damages Could Cost up to $180 Billion,” Fortune, September 3, 2017; http://fortune.com/2017/09/03/hurricane-harvey-damages-cost/.
- “Economic cost of Hurricane Irma ‘could reach $300bn,’” The Guardian, September 10, 2017; https://www.theguardian.com/business/2017/sep/10/economic-cost-of-hurricane-irma-could-reach-300bn.
- “Hurricane Maria Caused as Much as $85 Billion in Insured Losses, AIR Worldwide Says,” The Wall Street Journal, September 25, 2017; https://www.wsj.com/articles/hurricane-maria-caused-as-much-as-85-billion-in-insured-losses-air-worldwide-says-1506371305?mg=prod/accounts-wsj.
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