Trans4Cast – Hurricanes: Production Impacts and The Recovery

Industrial Production figures for August came out on Friday and the topline news wasn’t positive. Nor should you have expected it to be. Hurricane Harvey shut down a major industrial center for nearly 2 weeks and had impacts that spread out both before and after it. That means that August production was impacted for at least a full week. The good news is that we can still glean some insight from the report, it just takes a little more searching.

T4C - Manufacturing Output

Manufacturing Production

You can see from the graph above that non-durables manufacturing output was sharply curtailed in August. Houston is a major player in chemical, petrochemical and fuel refinery activity. Due to the impacts, our chemicals sector growth rate for Q3 has been cut in half – it is still likely to be positive, but not nearly as much as was expected. Output may not reach July’s total when we get the September results since the market was still reacting to Hurricane Harvey for at least the first week of September (and probably longer for many sectors).

A more useful measure of national trends is to look at durable goods production – since Harvey did not significantly impact durable goods production areas (the Midwest and the Southeast). Durables output was up 0.3% in August. That would indicate that industrial activity is still moving ahead at a steady clip, although I will note that durables manufacturing is down since peaking in April of this year.

 

Harvey and Irma – the 1-2 Punch

Together Florida and Texas represent about 15% of the U.S. economy. The storm interruptions of those two economic engines will cost U.S. GDP about 0.5 percentage points of growth 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 circuits. When you add in the other states affected by the storms the total truck activity affected is in the 15% range.

The good news is that once it hit Florida, Irma sped up its movement and died out here in Indiana (a thousand miles from Key West) in the time that Harvey squatted over Houston. That means that 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 industrial 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 flats full of wall board.

Stay Safe!

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