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             Hurricane Harvey Unlikely to Throw Texas Off Course - 
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                    <p class="article-label">Texas Economic Update</p><!-- primary topic -->
                                    <h1>Hurricane Harvey Unlikely to Throw Texas Off Course</h1><!-- heading -->


                    <p class="author">Laila Assanie and Stephanie Gullo</p><!-- author -->

                






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<div class="report-date">September 29, 2017</div>
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<p>Hurricane  Harvey caused widespread damage and broad disruption to the Southeast Texas  economy. Preliminary estimates indicate that Harvey will be one of the costliest  U.S. hurricanes, ahead of Sandy and behind Katrina. However, the storm&rsquo;s  negative impact on employment and business activity is expected to be  transitory and should not derail the state&rsquo;s positive economic momentum. The <a href="/research/forecast/">Federal Reserve Bank of Dallas&rsquo; forecast</a> for 2017 job growth is unchanged at  2.6 percent (December to December).</p>
<p>Before  Harvey&rsquo;s initial landfall, Aug. 25, state job gains were solid and unemployment  was at its lowest level in a decade. After Harvey, initial unemployment claims  soared, and the Dallas Fed&rsquo;s analysis suggests that employment will decline in September  before likely rebounding to trend growth in subsequent months.</p>
<h2>Employment Gains Strengthen in August</h2>
<p>The impact  of Hurricane Harvey was not reflected in the August employment figures because  payroll data are typically collected around the 12th day of the month.</p>
<p>Texas  payroll employment expanded an annualized 2.0 percent in August, up from 1.1  percent in July. Job gains were relatively broad based, with  the fastest growth seen in oil and gas extraction and mining support  activities, construction, and leisure and hospitality. The picture across the  major metros was mixed, with Houston employment flat and Fort Worth down 2.1  percent in August. Employment in both metros is up year to date. Through  August, the state has grown at a strong 2.6 percent annual rate. </p>
<h2>First-Quarter Job Growth Revised Upward </h2>
<p>The Texas  Workforce Commission releases a more comprehensive employment series, the  Quarterly Census of Employment and Wages (QCEW), which is used to benchmark the  monthly Current Employment Statistics data series. With the release of first  quarter 2017 QCEW data, Texas nonfarm employment was revised upward by 0.5  percentage points in the first quarter, from 2.69 percent to 3.19. Revisions to  employment growth were substantial in February and March (<em>Chart 1</em>).</p>
<p class="chart-full"><img alt="Chart 1" src="/-/media/Images/research/update/reg/2017/1706c1.png" /></p>
<h2>Initial Jobless  Claims Surge with Impact of Hurricane </h2>
<p>Texas initial unemployment claims climbed to 65,524 in the week  ended Sept. 2, nearly five times the level seen in the previous week (<em>Chart 2</em>). Claims have since come down to  around 32,000 in the week ended Sept. 16 but are still elevated relative to the  2017 pre-Harvey average of 13,900. Following Hurricane Ike in September 2008,  Texas initial jobless claims rose 142 percent and remained elevated for at  least five weeks. Given that the disruption caused by Harvey is of a larger  magnitude, initial claims will likely remain elevated for a similar or slightly  longer period. Prior to Harvey, state  initial jobless claims were below their 2000&ndash;06 averages.</p>
<p class="chart-full"><img alt="Chart 2" src="/-/media/Images/research/update/reg/2017/1706c2.png" /></p>
<h2>Harvey&rsquo;s Employment Impact Expected  to Be Short Lived</h2>
<p>Historically,  the impact of extreme weather events on Texas Gulf Coast payroll employment has  been transitory as employment resumes its normal growth path following a  temporary decline (<em>Chart 3</em>). Many of  the weather events highlighted in Chart 3 were not as severe as Harvey but  still point to the resiliency of the area&rsquo;s economy. </p>
<p class="chart-full"><img alt="Chart 3" src="/-/media/Images/research/update/reg/2017/1706c3.png" /></p>
<p>A <a href="/research/forecast/~/media/documents/research/forecast/harvey.pdf">Dallas Fed analysis</a> of the effect of Hurricane  Harvey on employment suggests that jobs will fall sharply in September, by 54,200  to 73,700 on the Gulf Coast and 37,800 to 60,400 statewide.<a href="#n1">[1]</a> Employment will likely rebound to  trend growth along the Gulf Coast by year-end and in Texas in October.</p>
<h2>Texas Business Outlook Survey Reflects Continued Expansion</h2>
<p>Texas factory activity increased  in September, and retail and service sector activity continued to reflect  expansion, according to business executives responding to the Dallas Fed&rsquo;s <a href="/research/surveys/tbos/">Texas  Business Outlook Surveys</a> (TBOS). Factory production and service revenue  continued growing in September, exceeding last year&rsquo;s averages (<em>Chart 4</em>). Retail sales climbed markedly  in September as well.</p>
<p class="chart-full"><img alt="Chart 4" src="/-/media/Images/research/update/reg/2017/1706c4.png" /></p>
<p>Hurricane  Harvey had a negative effect on the revenue and/or production of 41 percent of  firms responding to the <a href="/research/surveys/tmos/2017/1709/specquest.aspx">TBOS special questions</a> that focused on its impact. Over the  next six months, 33 percent of all special question respondents expect a decrease in their revenue and/or  production as a result of the storm. These firms identified loss of customer  base, personnel disruptions and transportation and/or supply chain disruptions  as the most significant impediments to getting back to business as usual. </p>
<h2>Harvey&rsquo;s Economic Losses Daunting</h2>
<p>Despite  the transitory impact of Harvey on employment and business activity, the damage  to property and infrastructure is severe. Moreover, insured losses are expected  to be a smaller share of the total compared with other major U.S. hurricanes  because a  larger-than-usual proportion of the property damage was from flooding. Harvey&rsquo;s damage costs are estimated at $85 billion  and up, putting the storm&rsquo;s losses ahead of most major U.S. hurricanes (<em>Chart 5</em>). </p>
<p class="chart-full"><img alt="Chart 5" src="/-/media/Images/research/update/reg/2017/1706c5.png" /></p>
<h2>Labor Shortages May  Worsen as Texas Gulf Coast Repairs, Rebuilds </h2>
<p>Labor  markets tightened further in August, with the state unemployment rate falling  to 4.2 percent&mdash;its lowest level since July 2007. Labor markets in Austin and  Dallas were even tighter, with unemployment below 4 percent. </p>
<p>With a  limited labor pool from which to choose, companies are reporting worker  shortages and difficulty hiring. Shortages are  particularly acute in construction, where wages have rapidly increased since  2012. Labor demand will rise as post-hurricane repair and restoration work gets  underway, further squeezing the Texas construction market and pushing up labor  and material costs. </p>
<p>When asked about the impact of Hurricane Harvey on  the labor market, 27 percent of firms responding to the TBOS special questions  survey expected their ability to find and hire workers to become more difficult  over the next six months.</p>
<h2>Home Sales Dip, May Decline  Further Post-Harvey </h2>
<p>Overall, statewide  home sales have plateaued at elevated levels and dipped in August (<em>Chart 6</em>). Sales of entry-level homes  (priced under $250,000) have been mostly flat to down throughout the current expansion  as home prices have rapidly increased. Sales of homes priced between $250,000  and $749,000, which had been expanding at a solid pace and accounted for 35  percent of the overall market in 2016, have softened in recent months as well.  Sales of homes priced above $750,000 have increased 3.9 percent year to date. Home  sales will likely slow further in the near term in Houston and other affected  areas due to the widespread storm damage to homes but will gradually return to  normal as recovery begins. </p>
<p class="chart-full"><img alt="Chart 6" src="/-/media/Images/research/update/reg/2017/1706c6.png" /></p>
<h2>Longer-Run Economic  Impact Likely Limited </h2>
<p>Research suggests that the longer-term impact of the hurricane is  expected to be limited.<a href="#n2">[2]</a> Houston  will rebound because of its importance as the energy capital of the U.S. and as  a center for business and trade. Other parts of the coast will gradually  recover as well, although some small-business owners may find it difficult to  reopen. </p>
<p>One  indicator of Houston&rsquo;s resilience is the sustained in-migration of firms following  previous severe weather events (<em>Chart 7</em>).  New Orleans was in economic decline before Katrina made landfall in 2005, with more  firms moving out of the metro area relative to those coming in. Katrina  accelerated the out-migration from New Orleans. In contrast, Houston&rsquo;s economy  was adding new firms on net prior to  Allison and Ike and continued  attracting employers after the storms&rsquo; immediate impacts passed.</p>
<p class="chart-full"><img alt="Chart 7" src="/-/media/Images/research/update/reg/2017/1706c7.png" /></p>
<div class="separator-notes"></div>
<h3>Notes</h3>
<a id="n1"></a>
<a id="n2"></a>
<ol>
    <li>For the Gulf  Coast, growth is expected to rebound by an annualized 15.7 to 21.1 percent in  October and rise 8.7 to 11.2 percent in November. A slight rise of 3.6 to  4.3 percent is anticipated in December. For  Texas, growth will likely rebound by an annualized 11.8 to 15.0 percent in  October while staying close to what had been forecast absent the hurricane for  November and December.</li>
    <li>&ldquo;The  Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties,&rdquo; by Eric  Strobl, <em>The Review of Economics and  Statistics</em>, vol. 93, no. 02, 2011, pp. 575&ndash;89; and &ldquo;Local Economic Impacts  of Natural Disasters,&rdquo; by Yu Xiao, <em>Journal  of Regional Science</em>, vol. 51, no. 4, 2011, pp. 804&ndash;20. </li>
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<p>Assanie is a senior business economist and Gullo is a research analyst in the Research Department at the Federal Reserve Bank of Dallas.</p>
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