Moderator: Welcome to Southeastern Economic Perspectives, an occasional podcast from the Federal Reserve Bank of Atlanta. I'm Jean Tate, and the following comments discuss the impact of the oil spill.
Michael Chriszt, an assistant vice president responsible for the Regional Economic Information Network, and Susan Remy, a Regional Economic Information Network analyst from the Federal Reserve Bank of Atlanta's Birmingham Branch, are joining me.
Thanks, Mike and Susan.
Susan Remy: Thanks for having us.
Michael Chriszt: Thank you.
Moderator: Can you bring us up to date with the current situation in the Gulf with the oil spill?
Chriszt: Well, Jean, we've had some very positive news over the last couple of days. It appears that the well is very much on its way to being plugged permanently. No oil has entered the Gulf for about a month. This week, federal officials gave a preliminary counting of the 207 million gallons of oil believed to have been released during the spill. A quarter of the oil has been removed from the water by burning or collection, and only about another quarter or so actually remains in its original form. The rest has either dissolved or been dispersed into tiny droplets throughout the Gulf of Mexico.
There is some degree of caution that we have at this current point. I think we were a bit overly pessimistic during the height of the oil spill in the early summer, and it's important not to become too optimistic now. There's been a lot of damage done to the local economies along the Gulf, and there's still several unanswered questions regarding the longer-term impact of the spill, both economically and ecologically.
Moderator: So how has the Research Department been tracking the economic impact of the spill?
Chriszt: Well, primarily our role has been to keep President Lockhart up to date regarding the potential national implications of the oil spill—basically, will it have an impact on the U.S. economic outlook? And we've done this through several channels. We've looked at data that's been available but, as you know, data come out with a bit of a lag, especially the more regional data that we look at, so we haven't been able to rely just on things like employment reports or initial unemployment claims—we've had to tap into industry experts. We've also turned to our directors for a lot of information. Each of our branches has seven members of its board, so our New Orleans branch, our Birmingham branch, and our Jacksonville branch—all areas that have connections with the Gulf Coast—have all given us some really good information about what's happening in real time. And we've also tapped into our Regional Economic Information Network contacts, including our advisory groups—we have an energy council, we have a trade and transportation council, we have a tourism council—that have really provided some great information to us about what's happening on the ground on a day-to-day basis. And we've also tapped into, more generally, business and community leaders throughout the area.
Remy: Some of our scientific experts have been from the Dauphin Island Sea Lab, the University of South Alabama Department of Marine Science, and Auburn University Department of Fisheries and Allied Aquacultures.
Moderator: Can you talk a little bit about the national implications of the spill?
Chriszt: Well, Jean, to date, our analysis suggests that the economic impacts of the spill have remained largely localized. As I mentioned a moment ago, there's numerous communities along the Gulf Coast that are suffering the effects of the spill, but the direct impact on the national economy appears to have been relatively minor so far.
Looking back at the case of Hurricane Katrina, for example, we identified two main risk factors for the national economy, and those were energy supplies and transportation. So, when we looked at this particular disaster, we kind of viewed it with that in mind, and to date, the supply of natural gas and refined petroleum products has not been significantly disrupted, and key transportation facilities remain operational.
I think it's also important to note that the economic footprint of the affected area is relatively small compared to the overall size of the U.S. economy. So I think it's important that since we haven't seen disruptions in energy and transportation and because of the limited size of the affected area, we do not see the Gulf oil spill as having significant impact on the national economy. And, in fact, to that end, we haven't altered our outlook for the U.S. economy because of the oil spill.
Remy: The local effect seems now to be restoring public confidence for tourism to return to the area.
Moderator: Many of the media reports focus on empty beaches and idle fishing boats. Can you talk about the regional impact of the oil spill on the Gulf?
Chriszt: Let me say something about tourism, then we'll turn to Susan and talk a little bit about what's happening in aquaculture, because those are the two industries that have been most affected on a local basis.
As far as tourism goes, the amount of cancellations that hotels and rental properties have received over the past couple of months has really accelerated because, well, people had genuine fear that there was going to be oil on the beaches of places they intended to vacation to. So there were a lot of cancellations over the past couple of months, really start[ing] in June and into July and also into August. Even though the oil didn't affect very much of the Gulf Coast, we did see cancellations going all the way down to Southwest Florida.
That said, when we take a step back and think about—again, turning back to your original question about what are the national implications—we saw an increase in tourism activity and bookings and visits to other areas in the Southeast that weren't affected by the spill, especially along the eastern coast of Florida. Even reports from Tennessee and the mountain vacation areas saw an increase in activity. And, anecdotally, they told us that a number of their guests had said that they had planned to go to the Gulf Coast but decided to go elsewhere. So, the overall national effect on tourism, I think, was partially offset by the fact that people simply chose to take vacations elsewhere.
Now that doesn't help the people along the Gulf Coast in this area, not only hotel operators, restaurant operators, retail establishments that depend on tourist traffic, but also recreational activities—deep-sea fishing excursions—all those areas were significantly affected along the Gulf Coast.
Remy: My scientist contact at Dauphin Island Sea Lab said that he would not worry at all about eating any fish from the Gulf at this time. He said that he doesn't feel like there's been enough impact from the oil to the seafood to be harmful. And he says that, particularly, Alabama has man-made reefs, and they have started as early as 50 years ago, and this is where a lot of the snapper and grouper reside. The snapper in particular are affected because they were spawning at the time of the oil spill. So some of those eggs were affected by the oil and just killed off. So, that's going to be an effect in the fish in the next two years because that's when the recreational harvest occurs, in the next two years, because before that the fish are not kept. So, he thinks there will be an impact on the amount of fish coming out of these areas.
Chriszt: I think that's a really important point when you talk about what are the longer-term impacts with regard to the local economy, Jean. Not only with regard to fishing activities, but also in tourism, there's some concern that there's been some long-term damage to the Gulf Coast "brand," if you will—not only for the aquaculture products, but also the vacation areas along the Gulf. It remains to be seen. I think it's important to note that what Susan said about some of our contacts saying that we were fairly confident that it's going to be a short-term impact on both fishing and tourism, we're really not going to know for a while until we see people start to return to the Gulf Coast for their vacations, and also until we see the fishing activity start to pick up again.
Remy: Another point that the scientist I was speaking with this morning brought up was that the natural system is very resilient. He gives 80 percent of the credit to the natural system and not necessarily the actions that have been taken.
Chriszt: You mean, like, 80 percent of the credit of getting the oil taken care of?
Remy: Breaking down the oil, yes.
Moderator: You also read a lot about the impact on the fishing industry. Are your contacts giving you any insight into the impact on this industry?
Chriszt: Well, as far as the amount of people that are employed, this is one of those numbers that's kind of fuzzy. Census Bureau data tell us that there's roughly an estimated 8,000 people employed in this industry along the affected coastal communities. In addition, the National Marine Fisheries Service reports that roughly the same amount of people—8,000—are employed in fish-processing plants along the states bordering the Gulf. So, it's a small industry when you look at some of the larger national numbers but still very important to some local communities.
The fact that two-thirds of the Gulf remains open to fishing, I think, is a positive sign. Basically, that means that not all of those jobs have been immediately affected. Some waters off the coast of Louisiana have been reopened recently, and some recreational fishing areas previously closed have opened up as well. I think the primary risk factor going forward is the potential destruction or contamination of fish, shrimp, oyster stocks, and the possibility that operations can be limited for several years. And our contacts in the scientific community tell us that this is probably going to be the case, that we're going to see a couple of years until there is full rehabilitation of the stocks that were affected.
Our contacts inform us that the overall impact of a reduced Gulf seafood supply will be felt mainly in restaurants, but not so much in grocery stores, more broadly, as really only about 1 percent or so of the seafood sold nationally through these outlets comes from the Gulf of Mexico.
Moderator: You mentioned that some of your contacts state that the impact will be felt for several years. Can you talk about the impact of the spill on the national and regional economies going forward?
Chriszt: You know, estimating the potential economic impact of the spill is really challenging because there's, even though it's capped, even though it looks like the situation is coming to an end, there's still a lot of uncertainty out there surrounding some key variables. We've talked about a few, about what's the long-term ecological damage to the fish stock and the oyster beds in the area. The overall impact on the environment—it's going to take some time to tell what that's going to be. We'll be turning to our science contacts, as Susan mentioned, to try to get a grip on that. I did read a study not too long ago that looked at the 1979 oil spill in the Gulf of Mexico—the one that happened down along the coast of Mexico—and some of the reports that came out after that regarding the rehabilitation of the Gulf; so within two years it was practically impossible to tell that there had been a significant event. So, we're hopeful that we'd see that again with regard to this time.
We talked a bit about some of the potential long-term damage to tourism, whether or not there's going to be some brand damage to the Gulf Coast. I'm fairly optimistic with regard to that. I think we have a benchmark coming up and we'll see what the attendance along the beaches this Labor Day weekend is going to be. Families traditionally take their last vacation of the summer during that time. So, if we see some numbers go up for Labor Day, I think that bodes well for the future with regard to tourism along the Gulf Coast.
We haven't talked much about the energy sector other than to say that it hasn't had a major impact on the national outlook, but there are some questions out there regarding the impact of the deepwater drilling moratorium, and whether or not that's going to have a significant impact on jobs. Depends on how long it lasts, and how many drilling operations actually pick up and leave for foreign waters. And we've heard some stories that there have been several of these platforms that have left, and trying to figure out whether or not that is going to have a long-term impact on employment in some local areas, and especially Louisiana's economy, is going to be something that we are going to be looking at going forward. And, of course, the big question mark with the ecological impact, it's going to be difficult to say until we see some fairly detailed scientific studies that are done.
Remy: Dr. Crozier said that he noticed a week after the cap was in place that the traffic on Dauphin Island had improved greatly. He said he too feels that if the Labor Day weekend is a good weekend for the Coast, then he thinks next year will be close to what it was before.
Chriszt: Yeah, I think those near-term benchmarks are important with regard to the tourism activity. Energy production is something we'll be keeping an eye on going forward. But, I think where we stand right now is we're, of course, much more optimistic than we were a month ago because the spill has been stopped and cleanup efforts appear to be doing the job, but there are still a number of uncertainties out there. But, Jean, we are a lot more optimistic now than we were just a month ago with regard to the longer-term impacts of this event.
Moderator: Thanks for your comments, Mike and Susan.
Chriszt: You're welcome.
Remy: Thank you.
Moderator: Again, we've been listening to Federal Reserve research team members Chriszt and Remy provide insight into the oil spill in the Gulf. This concludes our Southeastern Economic Perspectives podcast. Thanks for listening and please return for more podcasts. If you have comments, please send us Email at email@example.com.