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Gulf Oil Spill Update: July 21, 2010

To date, analysis suggests that the economic impact of the Gulf oil spill has remained largely regional in nature. Numerous communities along the Gulf Coast are suffering the effects of the spill, but the direct impact on the national economy appears to have been relatively minor so far. The two main risk factors for the national economy are energy supplies and transportation. So far, the supply of natural gas and refined petroleum products has not been significantly disrupted, and key transportation facilities remain operational.

In addition, the economic footprint of the affected area is relatively small compared to the size of the overall U.S. economy. The combined gross domestic product (GDP) of metro areas along the Sixth District's Gulf Coast affected by the spill—the region that extends from Louisiana to Panama City, including Lafayette and Lake Charles but excluding New Orleans—is less than 1 percent of total U.S. GDP. New Orleans is excluded because its economy does not appear to be significantly affected by the spill. However, if New Orleans were included, the expanded region's GDP would rise to 1.9 percent of the total U.S. GDP.

Because the energy and transportation sectors have not experienced disruptions and because the size of the affected Gulf economic footprint is limited, the Gulf oil spill is likely not to have a significant impact on the national economy. To that end, the Atlanta Fed has not altered its outlook for the U.S. economy because of the oil spill.

Agriculture & Fishing
Employment
Energy
Transportation
Travel & Tourism

Agriculture & Fishing

Louisiana officials announced in mid-July significant reopenings of recreational fishing areas previously closed because of the oil spill. Opening these same waters for commercial fishing will require federal authority approvals.

A primary risk factor for the Gulf's aquaculture industry is the potential destruction or contamination of fish, shrimp, and oyster stocks and the possibility that operations could be limited for several years. Contacts say that the impact of a reduced Gulf seafood supply will be felt by restaurants but not as broadly by grocery stores because only 1 percent of seafood sold nationally through these outlets comes from the Gulf.

Employment

Roughly two-thirds of the Gulf remains open to fishing, so not all of these jobs have been immediately affected.

The U.S. Bureau of Labor Statistics reported on state and local employment this week. The numbers show little evidence that the spill generated significant job losses through June. The charts below show the level (indexed to 2007 = 100) and the year-over-year percent change for employment in leisure and hospitality firms from January 2007 through June 2010.

Energy

U.S. Department of Energy data show that crude oil production has not been significantly affected, apart from some week-to-week volatility associated with regulatory uncertainty. Crude oil input into refineries in Petroleum Administration for Defense (PAD) District 3, which includes the Gulf Coast, has not declined in the weeks since the spill. Energy industry contacts report that the offshore rigs and platforms have been able to function without significant disruption except for a few rigs near the oil spill. In addition, the Louisiana Offshore Oil Port is open and functioning normally.

The main concern expressed by Atlanta Fed contacts in the oil and gas and related industries, as well as by local elected officials in Louisiana, is the announced moratorium on deepwater drilling and the resulting uncertainly surrounding future production. In early July, the U.S. Energy Information Administration estimated that the reductions in crude oil production resulting from the moratorium would average about 31,000 barrels per day (bbl/d) in the fourth quarter of 2010 and about 82,000 bbl/d in 2011. These figures represent a projected 0.6 percent of total U.S. production in the fourth quarter of 2010 and 1.5 percent in 2011. Interestingly, despite the increased risk of lower Gulf of Mexico production, crude oil prices have remained relatively stable.

Transportation

Contacts in the transportation industry have reported that activity through the Port of New Orleans and other regional facilities on the coast have not been significantly affected, although ships must navigate around the slick. They also noted that procedures, including ship cleaning, have been in place to limit the potential impact to port traffic.

Travel & Tourism

Contacts have reported that cancellations of hotel rooms and rental homes have increased sharply in this area, with rental homes being much more affected than hotel rooms. Several hoteliers noted very high occupancy rates in part because of the influx of cleanup workers, oil company personnel, and National Guardsmen. There are also numerous reports of reduced seasonal hiring by tourism businesses as well as reduced sales and rentals of vacation properties along the Gulf Coast.

Reports that oil may eventually reach southwest Florida and the state's eastern coast have had a negative impact on hotel and rental property bookings, according to some contacts. Reports from Naples/Fort Myers and the greater Miami area indicate that reservations have slowed significantly for both leisure and business groups despite the fact that Florida beaches beyond the Panhandle have not had any oil.

Some contacts report more tourism activity in the unaffected coastal areas of the Southeast. For instance, some hotels on Florida's east coast are seeing bookings increase. Although it is impossible to ascertain exactly how many vacationers changed their destination from the Gulf Coast to these other areas, anecdotal evidence indicates that some of the increase in non-Gulf bookings may be the result of visitors choosing to stay away from areas they perceive as affected by the spill. This increase could help mitigate some of the overall impact on national tourism spending.