Early estimates from Wall Street economists suggest the twin hurricanes that slammed the United States will have a sizable negative impact on third-quarter growth numbers.
Economists shaved their GDP estimates, with Oxford Economics paring 0.4 percentage points on the low end of the range to Goldman Sachs trimming 0.8 points on the high end. Most see the biggest hit from Harvey, with only modest reductions of 0.1 or 0.2 points from Irma.
One clear positive: The U.S. economy was doing well before the hurricanes hit and, in fact, had been estimated to grow near 3 percent, almost a point above trend. Goldman’s 0.8 point reduction brought its third quarter GDP estimate down to a trend-like 2 percent. And the forecast of Macroeconomic Advisors, shaved by 0.7 percentage points, is now at 2.3 percent for the quarter.
Most economists see the fourth quarter getting a boost as rebuilding begins, but had not yet estimated the impact.
Speaking at CNBC-Institutional Investor’s Delivering Alpha conference on Tuesday, Treasury Secretary Steve Mnuchin said: “There clearly is going to be an impact on GDP in the short run. We will make it up as we rebuild. That will help GDP.”
To be sure, the extent of damage from Irma is less clear as its effects were more spread out through Florida. Forecasters cautioned that Irma estimates could rise in coming days and weeks.
But Mark Zandi, chief economist for Moody’s Analytics, which lowered its third quarter estimate by half a point to 2.5 percent, estimated a bigger hit from Irma. He pegged potential lost economic output from Irma at $12 billion to $16 billion, compared with $9 billion to $11 billion from Harvey.
“The evacuation of much of the Sunshine State alone would have accounted for billions in lost output alone, even if the storm changed course and avoided Florida altogether,” Zandi wrote in his report. “Combine that with evacuees’ inability to return to work due to road closures and the widespread power outages roiling Florida, and the economic disruption will prove significant.”
Zandi estimates the combined cost of both storms, including property damage and lost output at $150 billion to $200 billion.
Beyond the overall growth impacts from the hurricanes, individual data releases should soon begin to see storm effects. Jobless claims out Thursday are seen surging above 300,000, nearly 50,000 above trend, and September job growth could be off by 50,000 to 100,000. Inflation could tick up with the surge in gasoline prices.
Retail sales, to be reported Friday, is a toss-up. A surge in spending ahead of the storms for supplies could be offset by the decline in spending immediately afterward. At some point, the sales number should begin to reflect a spending boost related to rebuilding and auto replacement. That likely will come too late for the August report from Florida, but it may already be happening in the Houston area.