EconSouth (First Quarter 2006)

Life After Katrina: Reflecting, Rebuilding Continue on the Gulf Coast

Six months have passed since Hurricane Katrina struck. Though the recovery effort has made progress, much remains to be done to repair and rebuild the region’s economy.

Hurricane Katrina was the costliest and one of the deadliest hurricanes in U.S. history. Katrina is estimated to have killed more than 1,200 people and displaced 400,000 more. Preliminary estimates from the Insurance Information Institute show that Katrina caused $38.1 billion (in 2005 dollars) in insured damage; total uninsured losses are much higher.

While numbers don’t tell the whole story, the deaths, dislocations, and destruction caused by Hurricane Katrina are unprecedented in U.S. history. The nation as a whole will adjust and recover from the storm’s economic consequences, but it’s less clear how the areas most directly affected are faring.

New Orleans Mardi Gras
Photos by Joe Miceli and Gail Psilos
New Orleans let the good times roll when it held Mardi Gras festivities in February and March. Despite the devastation the city experienced, staging the venerable celebration exemplified residents' determination to rebuild.

Workforce woes persist
Katrina wiped out roughly one-third of the jobs in New Orleans, and payrolls there have risen only modestly since. According to the U.S. Bureau of Labor Statistics (BLS) January Establishment Survey, 3,500 jobs have been added in New Orleans since September. The city, however, is still down more than 200,000 jobs compared to pre-hurricane levels (see chart 1). When New Orleans residents fled Katrina and her aftermath, the large displacement of people shrank the local workforce correspondingly, essentially erasing more than three decades of job growth in New Orleans.

Katrina was also quite disruptive to the workforce of Louisiana as a whole. In its January Household Survey, the BLS reports that Louisiana’s labor force had declined by just over 230,000 (nearly 10 percent) since the hurricane. The report also indicates that the state’s unemployment rolls have shrunk by more than 28,000 since Katrina, or 23 percent. Since the ranks of the unemployed fell at a greater rate than the workforce did (largely because of displacement), Louisiana’s unemployment rate is actually lower than it was in August, just prior to the hurricane (see chart 2).

Whereas New Orleans has been able to add jobs in the months since Katrina, the hard-hit Gulfport/Biloxi area of Mississippi’s Gulf Coast has not. The Gulfport-Biloxi metropolitan statistical area (MSA) lost 17,000 jobs in September, roughly 15 percent of the area’s entire workforce. Payrolls there have continued to decline. To the east in Pascagoula, damage was not as severe. Payrolls dropped by 6,500 (nearly 12 percent of the MSA’s workforce) from August to September, but 5,000 jobs have been added since that time.

The labor force for the overall Gulfport-Biloxi-Pascagoula area has declined by more than 10,000 since the hurricane, but the total number of unemployed has risen by more than 12,000, according to BLS data. As a result, the area’s unemployment rate jumped from 5.9 percent in August 2005 to 17.9 percent in January 2006.

Reconstruction, repairs forge ahead
Katrina’s wind and storm surge leveled homes and businesses for miles inland. In New Orleans, the hurricane’s destructive power caused breaches in the levee system protecting the city, compounding the storm damage with subsequent flooding. Because many homeowners did not have flood insurance, their reimbursements will be limited.

Real estate firms are reporting brisk sales, with property prices at or above pre-Katrina levels in dry sections of Orleans Parish, similar to reports from Jefferson Parish and other New Orleans areas that are not in a flood zone. Property is also selling in prime neighborhoods that had some flooding, such as the Lakeview neighborhood. Real estate transactions have completely stalled in neighborhoods that had the most severe flooding, however.

Chart 1
Payroll Employment in New Orleans MSA and Gulfport-Biloxi and Pascagoula MSAs
Note: Figures represent thousands.
Source: Bureau of Labor Statistics
Chart 2
Unemployment Rates in Louisiana and Mississippi
Source: Bureau of Labor Statistics
Reconstruction in Mississippi is progressing faster than in New Orleans mainly because flooding was not as severe. This distinction should not minimize the devastation Katrina caused along the Mississippi coast, as damage there was some of the worst the United States has ever suffered. But cities like Gulfport, Biloxi, and Pascagoula did not experience the prolonged flooding that New Orleans did. As a result, Mississippi’s cleanup and reconstruction were able to get under way more quickly. From an economic standpoint, the Mississippi coast is better positioned to make a more rapid recovery than New Orleans.

Viable transportation, labor costs pose challenges
Infrastructure repairs are also key to the rebuilding effort. Road, rail, and bridge repairs are under way. Port facilities in Louisiana and Mississippi are also being restored. The Port of New Orleans reported that in terms of vessel calls, it is operating at more than 90 percent of pre-Katrina levels. Tonnage levels—the amount of cargo handled—has not yet reached that level, but port operators expect it to by the end of April. Among the port’s constraints are shortages of truck drivers and damage to the Mississippi River Gulf Outlet waterway, the channel that connects the Gulf of Mexico to the inner harbor of the Port of New Orleans.

Rising labor and materials costs are also complicating rebuilding. Business contacts in Mississippi and Louisiana report that while labor costs rose immediately after the hurricane, they have since stabilized. With wages higher in damaged areas than they were before Katrina, construction workers have been attracted to the area. As a result, builders in these areas report few problems in finding workers.

But perhaps the key uncertainty going forward is the rebuilding of the levees that will provide the physical and psychological security that New Orleans residents have lost. If the levees are rebuilt to withstand a Category 5 hurricane, greater demand for concrete, steel, and other construction goods may lead to higher overall material costs. Such an increase would affect other rebuilding efforts as well.

Bringing tourists back
The Mississippi coast’s casinos are recovering slowly. In Biloxi, the Imperial Palace Casino reopened on Dec. 22 and is attracting large crowds. The Isle of Capri and Palace casinos also reopened in late December. However, the Mississippi Gaming Commission reported that 14,000 out of 16,000 casino employees remain out of work.

The National Association of Realtors reported that it will hold its annual meeting in New Orleans in November 2006. The gathering, which is expected to bring more than 23,000 attendees, is the largest convention to recommit to New Orleans since Hurricane Katrina. Other trade associations have also held their conventions in the city, and still more conventions are scheduled there. And in February and March, New Orleans celebrated Mardi Gras, the city’s most treasured tradition.

Chart 3
Shut-In Oil and Gas Production
Note: Data are through March 7, 2006. “Shut-in” means production lost because of destroyed infrastructure.
Source: Minerals Management Service, U.S. Department of the Interior

Manufacturing back online
Several storm-damaged factories along the Gulf Coast have resumed operations. For example, New Orleans’ Domino Sugar refinery, one of the nation’s largest, has reopened following extensive repairs. Most oil refineries affected by the hurricanes are operating, and one petroleum refiner noted increasing production, employment, and capital investment. However, manufacturers report that their recovery efforts continue to be hampered by a shortage of skilled workers.

Energy stalls
In the wake of Katrina, national attention focused on the damage to the Gulf of Mexico’s energy industry because roughly 29 percent of total U.S. oil production comes from the Gulf, and just over 60 percent of crude oil imports go through the area’s ports. Just as important, nearly half of U.S. refinery capacity is along the Gulf Coast, as is 20 percent of total U.S. natural gas production. Hurricanes Katrina and Rita damaged or destroyed oil and natural gas drilling rigs and platforms, ruptured underwater and above-ground pipelines, and forced several refineries to shut down.

Production of crude oil in the Gulf remains roughly 25 percent below its pre-Katrina level, and natural gas extraction is off by nearly 17 percent (see chart 3). (Approximately 40 percent of the shut-in crude can be attributed to Shell Oil’s Mars platform, which was crippled by Katrina but is expected to resume operation later this year.) Importantly, many firms are taking steps to expand exploration and refining capacity.

Banking on recovery
Many financial institutions instituted grace periods for homeowners who fell behind in their mortgage payments because of the hurricane. Nonetheless, between the end of June and the end of September 2005, total mortgage delinquencies increased in Louisiana from 6.7 percent to 24.6 percent, and in Mississippi, from 8.5 percent to 17.4 percent, according to the Mortgage Bankers Association’s National Delinquency Survey.

rebuilding gulf coast
Photo by Flip Chalfant

In its fourth quarter 2005 outlook, the Federal Deposit Insurance Corp. analyzed the effects of Katrina on the region’s financial institutions. The report indicated that the hurricane exposed local institutions to a higher level of credit losses and that they would likely see their balance sheets grow faster than normal as insurance reimbursement checks are deposited. The FDIC report also noted that it may be later in 2006 before the full extent of the damage to individual borrowers becomes fully known.

The road ahead
The efforts needed to recover and rebuild from Hurricane Katrina are as extreme as the storm’s devastation. The amount of materials and labor required is substantial, as is the level of cooperation between local, state, and federal politicians, developers, community activists, and other interests. Success will not come cheap or easy, and it appears that it also won’t come soon.

Members of the regional group of the Atlanta Fed’s research department contributed to this article.

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