Hurricanes raise questions about Florida's outlook: hammered by four hurricanes in the fall of 2004, Florida now faces a variety of economic challenges. Not since 1964 has the state been hit by multiple storms over such a short period

EconSouth, Winter, 2004 by Michael Chriszt

From mid-August through late September 2004, hurricanes Charley, Frances, Ivan, and Jeanne plowed through Florida, killing dozens of people and causing billions of dollars in damages. Together the four storms created the worst hurricane losses since 1992, when Andrew roared through southern Florida. Not to be forgotten, however, are the impacts beyond the Sunshine State. Southern Alabama also suffered severe damage from Hurricane Ivan, and heavy storms rained down on parts of Mississippi, Louisiana, and Georgia. But the bulk of the damage was in Florida, and the economic impact there is considerable.

Florida's economy has been an engine of growth not only for the Southeast but for the United States. In fact, Florida added jobs in 2002 and 2003 when the nation as a whole continued to see employment levels decline (see chart 1). During the past year the rest of the country has started to recover and by several measures has caught up with Florida. Nevertheless, through October, more than 40 percent of all U.S. payroll gains since the end of the recession were in Florida. The question is whether the 2004 hurricanes have derailed Florida's booming economy.

[GRAPHIC OMITTED]

Even though hurricane damage was severe in a few areas, large-scale economic disruptions will probably be short-lived. Higher insurance deductibles and inadequate flood coverage may have affected consumers' pocketbooks enough to have a negative impact on consumer spending in the short term, but reconstruction outlays will likely make up for any temporary slowdown. Damage to agricultural areas, on the other hand, may take longer to mend, and the outlook for tourism poses a number of unanswered questions.

Assessing the immediate damage

Insurance companies are paying over two million claims in Florida--nearly three times the number of claims from Hurricane Andrew in 1992--to customers whose property was damaged or destroyed by the 2004 hurricanes. The Insurance Information Institute estimates that payments for storm damage will be between $22 billion and $23 billion, surpassing the $20 billion paid out in the wake of Andrew (see chart 2). The institute also estimates that more than one out of every five Florida homes has been damaged by the hurricanes.

[GRAPHIC OMITTED]

The impact on employment. But placing a dollar amount on the damage does not adequately measure the hurricanes' overall effect on Florida's economy. The impact on employment is also an important indicator.

Gathering data to adequately measure the hurricanes' effect on jobs is difficult, and it may be well into 2005 before a clearer picture emerges. Estimates of payroll employment are reduced only when people have been off work for an entire pay period and not paid for the time missed. While some employed persons were off payrolls during the survey reference period for reasons related to the hurricanes' effects, some jobs were added as part of recovery efforts. Of course, the Bureau of Labor Statistics household survey showed that unemployment spiked in the most affected areas in the immediate wake of the storms but has since declined.

One employment indicator that was immediately measurable was a huge spike in initial unemployment insurance claims. New claimants jumped in the late summer as a result of the hurricanes. Weekly data show that initial claims had dropped back to pre-hurricane levels by mid-November.

Looking beyond Florida. The impact of the hurricanes will likely be felt beyond the Sunshine State. For example, the rebuilding that pulls construction materials and labor to Florida and southern Alabama may push up prices for these goods and services in nonaffected areas as well as damaged areas of the Southeast and even in areas beyond the region. An increase in prices in the immediate wake of storms is not unexpected as supply moves to catch up with increased demand. Anecdotal evidence and the fact that construction was already at very healthy levels before the hurricanes lead many analysts to believe that prices may remain elevated into 2005.

Oil production in the Gulf of Mexico is still reeling in the wake of Ivan. Oil rig shutdowns and evacuations as the hurricane approached caused expected disruptions, but these were exacerbated by damage to underwater pipelines. Most of the repairs to damaged drilling rigs and production platforms in the Gulf have been completed, but nine rigs remain out of commission at press time. More importantly, pipeline damage caused by Ivan has shut off nearly 6 percent of the Gulf of Mexico's annual oil production as of early November. Industry experts fear that it may take several months for repairs to the pipeline to be completed.

Determining the outlook

Even though the precise toll on Florida's economy may not be known at this point, some general assumptions can be made. Clearly, the economic impact was initially negative during the first several weeks following each hurricane as normal patterns of economic activity were disrupted. But by the fourth quarter of 2004 reconstruction was under way, and the economic impact turned more positive.