EconSouth (Fourth Quarter 2005)

Mississippi Construction Is Key to Recovery

Hurricane Katrina had profound effects on Mississippi’s economy in 2005 that will continue to dominate the state’s economic landscape for the foreseeable future. There is still no accurate estimate of the full economic consequences of the storm, but Katrina’s impact in terms of insured losses already surpasses that of the previous benchmark hurricane, Camille, which devastated the Mississippi Gulf Coast in 1969. According to the Red Cross, 68,000 homes in the state were destroyed as a consequence of Katrina, with another 63,000 suffering major structural damage. Many business establishments were also destroyed or damaged by the storm, including the casinos in the Gulfport and Biloxi area, which had been the primary engine of growth for that region.

Hurricane Katrina also took a heavy toll on employment in Mississippi. Payrolls were down almost 23,000 in November from a year earlier (over 2 percent of employment). Most of the job losses were in the coastal area, and the unemployment rates in the coastal counties of Hancock and Harrison approached 25 percent in October. Job losses were initially concentrated in the retail and hospitality industries, but most industries have experienced job losses as a consequence of the hurricane (see the chart).

Mississippi Employment Momentum by Industry
Note: This chart compares short-term and long-term employment growth to provide an overall picture of the state’s employment momentum by industry. The size of each circle is in proportion to that industry’s share of total employment in the state.
Source: Bureau of Labor Statistics data provided by Haver Analytics.

The property and infrastructure damage and the relatively poor employment numbers might not seem to be a harbinger of improvement for Mississippi’s economy in 2006. But money flowing in from insurance companies, government agencies, and private relief funds will likely provide significant stimulus to the state’s economy in the coming year. In addition, employment related to rebuilding should be strong and will help to mitigate the job losses stemming from Hurricane Katrina. In fact, employment in the construction industry has already begun to improve.

The Commission on Recovery, Rebuilding, and Renewal, appointed by Mississippi Governor Haley Barbour, is working with devastated communities to develop responsible rebuilding plans. While the short-term impact of Hurricane Katrina has devastated much of the economy of the Gulf Coast, there is hope that, in the long run, the area’s economy will be stronger than before.

Real estate and construction rise from the ruins
Mississippi’s real estate and construction sector should benefit the most during the recovery period. The housing market outside the storm-damaged areas, which grew only moderately during the first half of 2005, has experienced tremendous growth since the hurricane. For example, in the two weeks following Hurricane Katrina, home sales in Jackson rose 28 percent compared to a year earlier. Demand for housing along the coast has also been strong since the storm, but with only a limited number of houses available, home prices have surged.

Condominium development was strong along the coast before Hurricane Katrina, and analysts expect condos to become an increasingly important part of the state’s housing landscape. New housing construction and repair work will likely get under way in earnest in early 2006, with strong levels of activity anticipated well into 2007. But uncertainty surrounding potential changes in the building codes could cause some delays.

The hardest-hit area of the Mississippi coast was home to over 3,000 business establishments. The most visible of these were the casinos. The initial construction of these casinos in the early 1990s led to double-digit increases in employment in the construction industry. Analysts anticipate that the reconstruction will provide a similar or even greater boost, especially since a number of casinos are planning to expand beyond the original structure. Given the extent of the repair work already under way, however, limited labor and material resources may constrain the pace of some construction projects.

Rebuilding and expansion should revive tourism
After a record year in 2004, Mississippi’s casino industry was on its way to maintaining that momentum in 2005. The Gulf Coast casinos, in particular, were ahead of last year’s revenues through August, and the addition of the Hard Rock Casino was on tap to accelerate growth. However, the 13 coastal riverboat casinos were either torn apart or tossed on land by Hurricane Katrina, effectively crippling the area’s tourist trade—erasing $500,000 a day in tax revenue and $3.3 million a day in gaming revenue and putting as many as 14,000 people out of work.

After Hurricane Katrina demolished the offshore casinos that have become an important part of Mississippi’s economy, the state legislature voted to allow future casinos to be constructed on land.

Amid concerns that some casinos would not return to the area because of the extent of damage and the fragility of the water-based structures, the Mississippi legislature passed a law that allows the building of casinos on dry land in the coastal area. Most of the casino owners along the state’s Gulf Coast have announced that they plan to rebuild. Many of the casinos should be open again within the next 18 months. Meanwhile, the state’s inland casinos have benefited from an increased number of gamblers, partially offsetting tax and tourism revenue losses from the Gulf Coast.

The tourism and gaming sector should pick up steam as it gradually rebuilds in 2006.

Manufacturing should rebound
Manufacturing employment, which accounts for more than 15 percent of Mississippi’s total workforce, was relatively stable before the hurricane. Employment fell by 5 percent in September but recovered approximately half of that loss by November. The facilities of large employers along the coast—such as the shipbuilding industry, which employs approximately 15,000 workers—were damaged and temporarily shut down, idling thousands of workers.

Going forward, Mississippi’s furniture and wood products industries, which had been experiencing slight declines in employment in recent years, should be stimulated by hurricane replacement and repair demand. The region’s expanding vehicle production industry, which was relatively unscathed by Katrina, will also continue to boost the state’s manufacturing sector.

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