US economy likely to take big hit from Irma
Hurricane Irma's expected collision with Florida will deepen and prolong the slowdown in a U.S. economy already digesting the impact of another storm that smashed Texas two weeks ago.
The September timing of Irma threatens economic damage that will spill over into the final three months of the year, extending the volatility the U.S. was set to experience in the third quarter from Hurricane Harvey. While major weather events tend to depress growth before boosting it later, Irma could delay some of the rebound into the first half of 2018.
Harvey knocked offline almost a quarter of U.S. oil refining capacity and caused widespread power outages and flooding, bringing the Houston metropolitan area to a standstill. The impact was already visible in last week's jump in unemployment-insurance claims, the biggest since 2012, and is expected to show up in upcoming payroll tallies, along with car sales and inflation data.
Harvey's effects could lower economic growth by 0.3 percentage point in the third quarter, according to the median estimate in a survey of 36 respondents con- ducted by Bloomberg Sept. 1-7. Gross domestic product expanded at a 3 percent annual pace in the previous three months.
Irma will "create further weakness in indicators that are already softening as the result of the hurricane," said Michelle Meyer, head of U.S. economics at Bank of America in New York, who trimmed the tracking estimate for this quarter by 0.4 percentage point to 2.5 percent. "The rebuilding efforts have taken some time to show through in the data" in the past, so some of the upswing won't be felt until the first half, she said.
Irma has weakened slightly to a Category 4 storm with top winds of 150 miles an hour, the U.S. National Hurricane Center said in an advisory at 11 a.m. New York time. Still, the storm remains "extremely dangerous," the NHC said. The deadly system was projected to maintain its strength until it slams into Florida on Sunday, having already left at least 11 people dead and thousands homeless across the Caribbean.
There is likely to be a "sizable adverse impact" on September's change in the number of Americans on nonfarm payrolls, with a decline possible for the month, according to NatWest Markets. Irma is expected to hit Florida this weekend, the start of the payroll survey reference week, which includes the 12th of the month. The last time U.S. payrolls fell was September 2010, according to Labor Department figures.
While it's too early to tell, Irma threatens to have an effect on nearterm inflation as it could impact $1.2 billion of crops in Florida, such as tomatoes and oranges. Any significant agricultural damage could lead to higher prices for some time, potentially boosting inflation when measured nationally, Meyer said. On top of that, just the state's citrus industry alone supports about 45,000 jobs.
"It's going to have impact on two segments of inflation: wage inflation and food inflation," Mohamed El-Erian, chief economic adviser at insurance and financial services company Allianz and a Bloomberg View columnist, said. "The lower GDP for sure will be offset by the rebuilding, and the inflation is a question mark."
IHS Markit Chief Economist Nariman Behravesh reduced his estimate for GDP expansion this quarter by about 1.1 percentage points to a 2.1 percent annual rate, citing Harvey, a flattening oil-rig count and the weak construction report for July.