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September 06, 2005

Hurricanes and Employment: A Retrospective

The September 1 Wall Street Journal contained an article by David Wessel (page A1in the print edition) that documented average GDP growth over the half-year following quarters in which a major hurricane hit.  This picture sums up the main lesson:

P1ad306b_capital08312005202032

Perhaps unsurprisingly, there is likewise scant evidence of much lasting impact -- if any -- on employment growth following major storms past.  The following set of pictures depict monthly job growth for the top ten most costly U.S. hurricanes (in terms of material damage) since 1954.  The vertical lines identify the month of the event, and the costs are expressed in 2004 dollars.

Diane

Betsy

Camille

Agnes

Hugo

Andrew

Charley

It may turn out, of course, that the scale of Katrina is so far off the map that these historical precedents are not much precedent at all.  Although I'm not entirely sure how anyone can possibly know at this point, at least one analysis has an early estimate in the neighborhood of $100 billion, which would make it twice as much as Andrew, the current record holder (which it itself was well over twice as expensive as any other single storm in the period under examination).  On the other hand, there is the hypothesis -- promoted in today's Wall Street Journal (page A1) by Jon Hilsenrath and Greg Ip -- that the U.S. economy is better suited to withstand major shocks than in the past.

I guess, unfortunately, we will know soon enough.  The best we have now is plenty of informed speculation, from the likes of Brad Setser, Econbrowser, Angry Bear, The Big Picture, The Capital Spectator, The Eclectic Econoclast, Environmental Economics, Peter Gordon's Blog, the NABE blog, and many more.

September 6, 2005 in Katrina, Labor Markets | Permalink

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Listed below are links to blogs that reference Hurricanes and Employment: A Retrospective:

» On the nature of economic recessions from Econbrowser
What exactly happens in an economic recession, and how much has Katrina increased the likelihood of one developing? [Read More]

Tracked on Sep 8, 2005 12:25:59 AM

Comments

"that the U.S. economy is better suited to withstand major shocks than in the past."

Brad Setser directs our attention to the Economist's Buttonwood who has some discussion of this and related issues. I think the point Buttonwood misses is the issue of whether what the network theorists call a "giant node" is disrupted or not. If this were the case then this would influence the whole shock propagation system.

Brad Setser again is trying - eloquently - to argue that the Lousian port would more or less count as such (my terminology, not his). However important as the port is, it seems very much a focus for 'old economy' activity (ie a lot of kilos to the dollar), and may not be so strategic to the modern economy as it is to trade communications. Obviously though, as well as employment, we should be watching for a current account impact.

On whether the economy is resilient to shocks, I would say this depends *where* in the cycle you are, and what your momentum is. If 09/11 had come just months before the Nasdaq crash its impact would have been very different.

If the US consumer really is stretched to the limit, or if the housing boom really is on the brink of bursting, then the impact of suddenly declining consumer confidence would be very important. My feeling is that neither of these priors hold. There is more juice in the lemon yet. Still, from the 'economists view' this, apart from the terrible human tragedy dimension (we still don't know the death toll), is a very interesting opportunity to put all our theories to the test.

On your trend/cycle type preoccupations, one of the difficulties in assessing the impact will be to separate what is Katrina, and what is a lagged impact of the steadily rising oil prices we've seen this year: ie growth was undoubtedly slowing anyway.

Posted by: Edward Hugh | September 07, 2005 at 03:15 AM

The answer to your question is simply this: Is the damage Katrina inflicted similar in size and scope to prior hurricanes?

I (obviously) feel it did significantly more damage. Beyon d the phyiscial destruction is the disruption of shipping and energy production.

There's a reason NFL surgeons don't rely on theior experience with Pee Wee football injuries to help guide them when working on NFL injuries -- bigger/faster/more damage requires a different thought process and approach.

It is non-linear. I expect it will be a similar issue here . . .

Posted by: Barry Ritholtz | September 14, 2005 at 07:38 AM

I think this employment growth can be expected after hurricanes or other disasters.Then the search for employees becomes bigger.

Posted by: Cara Fletcher | July 11, 2007 at 11:12 AM

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