Hurricanes Will Cost U.S. GDP About 0.5% in Third Quarter of 2017

Noel Perry, Partner at FTR, reported during the company's annual conference an initial projection of the impact Hurricanes Harvey and Irma will have on the U.S. economy in the third quarter.

FTR

Noel Perry, Partner at FTR and Senior Economist for Truckstop.com, provided first insights about Irma at the 2017 FTR Transportation Conference. Although it’s too early to collect any data from this second major hurricane in three weeks, due to FTR’s concentration on understanding Hurricane Harvey Noel was able to provide an initial assessment.

Like Harvey, Irma is primarily a water event, even though the Florida Keys and southwestern Florida got some big winds. With Harvey the wet came from the skies, with Irma more of it is coming as storm surge from the ocean. That comes from the fact that Irma will affect more than twice the coast line touched by Harvey. In addition, Harvey was a smaller storm. That became a big deal when it stalled right over Houston, setting the contiguous U.S. record for sustained rainfall. Once it hit Florida, Irma speeded up its movement and will have died out in Indiana, 1,000 miles from Key West in the time that Harvey squatted over Houston. That means Irma’s effects may be less catastrophic in any one place but will visit many more places. One other difference is that Houston is a major manufacturing town, with the chemical plants right down on the water. In Florida, it’s mainly consumer activity. So, the effects in Texas will be heavily tank truck and railcar related, while in Florida it will be dry vans full of consumer goods and flatbeds full of wall board. 

Economic Impact

Together Florida and Texas represent about 15% of the U.S. economy. The storm interruptions of those two economic engines, 4th and 2nd respectively among the states, will cost U.S. GDP about 0.5% in the third quarter of 2017. The two states account for about 7% of U.S. trucking activity on a typical day and affect another 4% as important parts of truck trip circuits. 

Spot Market 

Using Harvey as a guide, this week will be a major down week for trucking in the Southeast, with volumes off perhaps 25%. Inbound to Florida, a headhaul in the best of time will probably demand a premium, with prices up 10-30% depending on the lane. Prices may fall outbound. Volume should get back to normal during the second week, at least inbound, then run modestly higher for 6 months or more.  

Noel commented, “We see from the Trans4Cast report (a partnership between Truckstop.com and FTR) that national market tightness jumped up sharply one week after Harvey and jumped some more the second week. Expect another couple of weeks of tightening from Harvey. Throw in the Harvey-inspired fuel price hikes and you get 20%+ jumps in average national spot market pricing. It doesn’t take long for such regional stress to show up in the national numbers. It is certain that Irma will occasion several more weekly jumps.”   

Additional Impacts

A relatively strong freight economy and the pending electronic logging device (ELD) mandate means the freight transportation industry is approaching very murky, troubled waters. Such storms usually affect the large markets from three to 6 months. With the ELD mandate only 3 months out the industry could have troubled markets into the summer of 2018. This is clearly a time to be monitoring markets as closely as possible. Truckstop.com and FTR Transportation Intelligence are committed to providing timely data and the best analysis. 

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