By Dr. Mike Walden
Hurricane Florence will likely go down as one of the most damaging storms to ever hit North Carolina. One estimate pegs the total cost at near $50 billion, which would place Florence as the sixth most expensive hurricane in the 21st century.
The recovery efforts will take a long time. As the rebuilding takes place, and homes and businesses are put back together several important economic questions arise. Are there different kinds of costs and damages from a hurricane? Can we expect a surge in unemployment, and if so, how long will it take to bring jobs back? Could Florence’s devastation plunge the state into an economic recession? Will the areas most hurt from Florence have their economies permanently harmed?
There are two kinds of measurable costs from hurricanes. One is from lost production because people can’t get to work or because their workplace was damaged. A good example is restaurants. Meals not sold because the storm keeps both workers and customers away, or because the roof blew off the restaurant, is lost production that can’t be made up. Research suggests lost production accounts for about one-fourth of the total financial costs of hurricanes.
The biggest cost is property damage. Damage to homes, rental units, farms and business structures comprise three-fourths of aggregate hurricane costs. Of course, the extent of property damage will vary. Some structures only require replacement of shingles and siding. Others may be total losses.
In many cases, the production losses will be short-lived as businesses and workers get back to some degree of normalcy. Already tourists have been returning to our coasts, and as time goes on more stores, factories and farms will be up and running.
Property damage – especially if it is severe – takes more time to recover. Sometimes the rebuilding takes months, even years.
What will a hurricane do to the local and state economies, and particularly the job market? Should we expect to see the North Carolina unemployment rate, which has dropped one-half percentage point in the last year, reverse and head upward in coming months?
Research on past hurricanes reveals the broader economic impacts are likely to remain local, and we won’t see any major changes in the long term trends at the state level. But an analysis of the local economic impacts of U.S. hurricanes from 1970 to 2005 show those areas hit by a hurricane could see their economic growth rate cut by almost one percentage point. This means a region with a pre-hurricane growth rate of 3.5 percent would see the post-hurricane growth rate would drop to 2.5 percent. There would be a corresponding increase in local unemployment.
But here’s some good news. The large decrease in local economic growth and increase in local unemployment are temporary, lasting two to three months. Afterward there begins a partial recovery led by reconstruction efforts that reduce the growth and job losses by between one-quarter and one-half. The storm-impacted local economy reaches pre-hurricane economic conditions in about a year.
Now recognize these results are based on the average storm, and if Florence was worse than the average hurricane, the local economic impact could be more negative and the length of time to full recovery could be longer.
Which brings us to the final question. Will Florence irreparably harm the local economies of those regions of our state most impacted by the storm? As long as sufficient recovery funds from private and public sources are expeditiously deployed and used, the answer should be “no.” This is why it is vitally important that credible damage assessments be collected as soon as possible after the storm has passed, and that rebuilding work be monitored by both public and private entities.
None of what I have said should be interpreted as suggesting we should just accept hurricanes will happen because everything will eventually return to normal. First, everything won’t necessarily return to normal for everyone, everywhere. Plus, even if it did, the physical and psychological pain of going through a hurricane and its recovery (which my wife and I did with Fran) is no picnic – and is something we would want to avoid.
So while Florence is fresh in our minds, all of us – individuals, organizations and government – should be evaluating ideas to make the next hurricane less costly. The Walden’s did this after Fran when we installed a drainage system and sump pump for the lower level of our home. When the original track of Florence took the storm directly over Raleigh, we were glad we were ready.
The country has had enough experience with hurricanes to observe a pattern in the economic impacts. The finding that most areas make a full recovery from the storm’s destruction is no solace for the pain and suffering of the victims. This raises perhaps the most important question – what can we do now to make the impacts of the next storm less costly to both people and property? You decide.
Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.Share: