As a tropical storm was gathering strength last week, fears were growing that the fierce winds might knock out Gulf Coast refineries, send gasoline prices soaring and seriously damage the U.S. economy.
But when Hurricane Isaac slammed into the Gulf Coast on Tuesday, it was only a Category 1 hurricane, far weaker than Katrina, the monster storm that hit seven years ago.
Now, with the remnants of Isaac dissipating, economists are saying the storm’s national economic impact will be relatively muted and short lived. After the Labor Day weekend ends, gasoline prices are expected to begin easing down from their storm-related run-up.
“We would expect damages to be worth less than 0.2 percent of GDP,” economist Gregory Daco wrote in an analysis for IHS Global Insight, a forecasting firm. In comparison, Katrina cut nearly a full percentage point from the gross domestic product, a measure of total economic growth.
“Fortunately for the U.S. economy and for New Orleans itself, Isaac has not replicated the destruction wreaked by Katrina,” which killed 1,836 people and inflicted total property damage of about $120 billion, Daco said.
Hurricane Isaac caused from $700 million to $2 billion in insured onshore losses, according to a late Thursday report by AIR Worldwide, a disaster modeler. That amount would leave Isaac well outside the 10 most costly U.S. hurricanes, the report concluded.
Of course for millions of people in the path of Isaac’s winds and rain, the local damage is immense. Entire neighborhoods remain under water, hundreds of thousands of people still have no electricity, roads and bridges have been damaged and yet-untold numbers of cars and boats are in bad shape. At least four people were killed in Louisiana and Mississippi.
Ahead of the Labor Day weekend, many small businesses in beach-resort areas are scrambling to get ready for tourists, and the thousands of people who were evacuated from their homes are trying to get back to their jobs.
As economist Daco put it, while the storm’s “impact is minor at the national level, it is nontrivial at the level of affected states and municipalities.”
Isaac’s biggest potential for harming the broader economy involved the energy sector. Gulf of Mexico crude oil represents about 28 percent of total U.S. production. As the hurricane approached, nearly all of the region’s oil production was shut down. Many Gulf Coast refineries also voluntarily shut down operations.
But now, with the storm gone from the Gulf, companies are preparing to restart operations. Worst-case scenarios are now out of the picture, so the outlook is improving for crude oil. Wholesale gasoline “rose about 20 cents per gallon in anticipation of Isaac, but they have fallen back 10 cents since their August 27 peak,” Daco concluded. “Meanwhile, retail gasoline prices have risen about 10 cents, but the potential for further increases seems limited.”
AAA, the auto club, agreed that gas prices are likely to ease after a recent surge.
“The good news for motorists is gas prices will likely retreat to pre-Isaac levels by next week and continue to drop as demand tapers off and gas stations switch to less expensive winter blended gasoline,” John Townsend, a spokesman for AAA Mid-Atlantic, said in a statement.
Doug Mauro, owner of Historic Oak Hill Inn in Natchez, Miss., said in a phone interview that although the eye of the hurricane passed almost directly over the town, the wind didn’t do much serious damage and now the Labor Day weekend is looking promising.
“We had lots of rain, but we were lucky…the wind was not too bad,” he said. “We had one couple who cancelled yesterday, but they are coming back today.”
Mauro said he doesn’t expect elevated gas prices to hurt too much either in Natchez. “People have gotten used to the higher prices now,” he said.