Finance: There’s a reason economic measures are no good at capturing the likely damage from Hurricane Harvey

Economic measures seem almost callous when it comes to assessing the impact of a natural disaster like Hurricane Harvey.

There is always something callous about economic analysis of natural and humanitarian disasters, because the human and physical loss is so immediate that financial concerns appear superfluous.

But there’s another key reason the already highly imprecise exercise of economic forecasting becomes especially useless with major disasters like the deadly Hurricane Harvey, which has already inundated Houston and is expected to cause untold damage.

Measures of economic activity like gross domestic product (GDP) were "not designed with natural disasters like Hurricane Harvey in mind," according to Steven Kyle, an economist at Cornell University, in an emailed statement.

That’s because GDP will capture the reconstruction efforts that follow the storm but not subtract anything for the destruction, apart from any slowdown in economic activity immediately associated with the storm.

"A significant portion of the country’s oil and oil-processing infrastructure will be out of action for a while," Kyle said.

"In addition, we have seen a huge destruction of capital assets — houses, roads, office buildings — and we will then see a burst of economic activity as these are rebuilt," he said. "That may make it look like we are getting a boost but I doubt if anyone in coastal Texas would tell you that they are better off. They lost a lot of stuff and are working to rebuild what they lost. Measures like the GDP pick up the effort to rebuild — but don’t count the loss in assets."

With this in mind, Greg McBride, the chief financial analyst at Bankrate.com, said in an email that the storm will not have a major impact on national economic growth, which has been hovering around 2% in recent quarters.

“In the near term, bank on higher oil and gasoline prices until refining facilities and other petroleum infrastructure are back in operation,” he said. “After that, oil prices will settle back into the familiar $45-$50 range we’ve seen in recent months.”

Economic measures seem almost callous when it comes to assessing the impact of a natural disaster like Hurricane Harvey. Read Full Story