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The Economic Effects of Spring’s Severe Weather

May 26, 2011

Jean Tate: 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 effect of the tornado outbreak in April and the Mississippi River flooding on the region's economy. Michael Chriszt, an assistant vice president responsible for the Regional Economic Information Network, joins me.

Photo of Michael ChrisztMike Chriszt: Hello, Jean.

Tate: So, with the significant weather events that we've had over the past weeks—first the tornado outbreak in late April and then the flooding along the Mississippi River—separating out the cost of the human suffering, if that's even possible, can you talk about just the economic impact of these events?

Chriszt: Sure, Jean. You make a great point. It's very difficult to talk about these sorts of things without factoring in the human cost. Over 350 people lost their lives, thousands of others lost their homes. But the recovery from this is part of the overall story, and I think that's what we'll focus on today.

Historically, the economic pattern for most of these disasters is one that sees initial losses as affected areas experience a slowdown in economic activity. The duration of the slowdown is definitely tied to the extent of the damage and whether or not it happened in economically important areas—and, of course, the duration of the loss of services, such as power and water, to some of the areas that were affected by the storms.

Recovery in general is driven by two factors. One is of course the physical rebuilding of the damaged and destroyed infrastructure, and also the replacement of capital and household goods. What tends to happen is that as insurance checks are distributed and government aid is delivered, the economic recovery does begin to take hold. Another point, you know, rebuilding the infrastructure and replacement of capital and goods can stretch out for several years depending on the extent of the damage.

Thinking about the tornado outbreak first: We anticipate that the disruptions of this event will be temporary and don't pose a threat to the broader economic recovery underway in the region. Power has been or continues to be restored, cleanup is underway, and the disruption to production, transportation, and general business activity is probably going to be short lived in most areas. That said, the areas that were affected most directly, of course, are going to take a much longer time to recover.

Another exception is rural areas. Just to take a step back and think about especially the Tuscaloosa event, these large urban areas often have the resources, training, and funds to deal with hazards and disasters. Rural places receive disaster aid much more slowly. They're much more thinly populated and generally more difficult to access after a disaster. I also worry about depopulation in these areas where major employers will be offline for some time. If folks don't have a place to work, they may leave the area and seek employment elsewhere, and that can have definitely a long-term impact on the recovery in rural areas.

Tate: Can you talk a little bit about the flooding along the Mississippi River, particularly with them breaking some of the levees? What kind of economic impact are we going to see from that as the flooding moves down the river?

Chriszt: Well, definitely, Jean, opening that Morganza Spillway diverted floodwaters away from the Mississippi, and other flood control measures have relieved pressure on Baton Rouge and New Orleans. A couple of weeks ago, that was the main concern—that a lot of the refineries, chemical producers along the river around Baton Rouge going through to New Orleans, thinking about the Port of New Orleans that might be offline for some time because of the flooding—that risk has been greatly reduced. We don't expect any long-term damage to the infrastructure because of this. Areas that are flooding because of the diverted water will face some challenges, not unlike those that are faced by their counterparts upriver. Damage to homes and businesses and farmlands will be severe, but major population centers appear to be spared. At this point, we don't expect any long-term severe damage, but short-term disruptions are likely.

Tate: So, in the past, you've mentioned that the Mississippi River is a major transportation artery for the country, moving grain from the Midwest down the Mississippi and out through the port. How have the floods affected the river traffic?

Chriszt: That's a great question. Generally, river commerce has slowed because of the navigation challenges that are posed by the rising water, but the latest reports that I have seen show that traffic is continuing, although at a much slower pace in some areas. The Port of New Orleans—as you mentioned, it's a major hub—is open, and this is a bit different from if you think back to Hurricane Katrina, when the port was shut down for several weeks. That did have an impact on our overall trade, but at this point it looks like it is going to be OK.

Tate: Looking past these weather disasters, and we've certainly had our share here in the Southeast over the past couple of years, can you give an estimate on how long the rebuilding might take?

Chriszt: That's another great question. It depends on a lot of factors. One is, of course, the extent of the damage. A good example is the difference between Tuscaloosa and Huntsville in Alabama with regard to the tornadoes. Tuscaloosa saw some severe destruction and damage to property, residential and business. Huntsville didn't have that major impact in that way, but power was lost to the Huntsville area for about a week or so. So Huntsville is back online, Tuscaloosa is going to take a lot longer to recover.

There's also the extent of the uninsured losses. There are people that are going to face some severe personal challenges moving forward. And also, what kind of rebuilding plans are being put together? Is it a case where what was once there is simply going to be rebuilt as it was? Or are there going to be changes to building codes? Is there is going to be a redevelopment component to the overall rebuilding process? We don't know all the answers to these yet, but overall I think we can expect that it will take some time. Also, as I pointed out a moment ago, the affected rural areas do tend to have a much longer rebuilding process.

Tate: So, in summary, what's the bottom line—the effect that these events have had?

Chriszt: Jean, the bottom line is that we think there will be disruptions to economic activity, both from the tornado outbreak and from the flooding of the lower Mississippi, but at this point we don't expect that this will derail the economic recovery that's underway in the region.

Tate: Thank you for talking about this important issue. I know that it's on a lot of people's minds now.

Chriszt: Thank you, Jean.

Tate: Again, we've been listening to Atlanta Fed research team member Michael Chriszt provide insights into the southeastern economy. 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 podcast@frbatlanta.org.