EconSouth (Third Quarter 2006)

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Volume 8, Number 3
Third Quarter 2006


FEATURES

The Energy Debate: Is Ethanol the Answer?

The Gulf Coast’s Tourism Comeback: Playing for Even Higher Stakes?

Hurricanes Spawn
Insurance Rate Increases

Katrina Update: One Year After

DEPARTMENTS

Fed @ Issue

Grassroots

Q & A

State of the States

Research Notes & News

Southeastern Economic Indicators

Staff

BackGround

 

 
Katrina Update: One Year After

On Aug. 29, 2005, Hurricane Katrina cut a 90,000-square-mile swath of destruction along the U.S. Gulf Coast. One year later, what progress has been made in cleanup, reconstruction, and restoring some sense of normalcy to the areas devastated by the storm?

Katrina damage
Photo by Flip Chalfant
The anniversary of one of the nation’s worst natural disasters just passed. One year ago, Hurricane Katrina rolled through southern Florida and then moved along the Gulf Coast and struck Alabama, Mississippi, and Louisiana, killing over 1,800 and causing billions of dollars of damage. Today, the recovery is progressing rapidly in some areas and more slowly in others. Rebuilding is under way, but the pace varies from one affected area to another. At the first anniversary of Katrina, it is clear that complete recovery will take many years.

Cleanup continues
The removal of debris and damaged structures in Mississippi is nearly complete, according to statistics from the U.S. Department of Homeland Security (DHS). In Louisiana, debris removal from public areas is also almost finished, while the cleanup of debris on private property and structural demolitions continue. DHS reported in August that just over half the estimated amount of debris on private property in Louisiana has been removed. In addition, only an estimated 13 percent of structural demolitions have been completed in the state. While only 6 percent of demolitions had been completed in May, according to DHS statistics, it is important to note that the pace of demolitions in Louisiana has accelerated in recent months.

Related Links
On the Web:
Louisiana Recovery Authority
Louisiana’s Road Home
Mississippi Renewal Forum

The difference in the progress of cleanup between Mississippi and Louisiana is attributable to the fact that wind and storm surges from Katrina completely destroyed homes and businesses along Mississippi’s coast, but in New Orleans thousands of homes were flooded, damaging (possibly beyond repair) but not totally destroying them.

Louisiana: Signs of improvement
One way to measure the affected region’s economic recovery is to compare current economic conditions to the pre-Katrina situation. Another involves measuring progress since the hurricane struck. Both shed light on the region’s recovery.

Katrina damage
Photo courtesy of FEMA
Louisiana hopes The Road Home, a program that assists homeowners with repairing damaged and destroyed homes, speeds the pace of resettlement and clarifies the status of properties whose ownership Katrina left in limbo.

According to the U.S. Bureau of Labor Statistics’ (BLS) Establishment Survey, Louisiana’s payroll employment declined from 1.96 million in August 2005, before Katrina struck, to 1.72 million in the following October, a net loss of just over 240,300 jobs. Since October, the state has added a net 59,800 to payrolls. Likewise, Louisiana’s unemployment rate rose from 7 percent in August 2005 to 12 percent in October 2005. By July 2006, the state’s unemployment rate had declined to 2.9 percent, reflecting both increased hiring and reductions in the labor force as people left the state.

In the New Orleans metro area, 204,700 people lost their jobs in September 2005 and another 10,400 in October. The total decline in payrolls because of Katrina amounted to 35 percent of prestorm payrolls. Since the October trough, establishments in the New Orleans metro area have added a net 42,100 jobs through July, according to the latest available data. Industries showing the strongest recoveries since October 2005 have been leisure and hospitality, retail trade, business services, and construction (see the table).

Another BLS measurement, the Household Survey, reveals how dramatically the New Orleans workforce has changed. According to the survey, which estimates the labor force and unemployment, the New Orleans-area workforce has declined by 194,000 (or 31 percent) since the hurricane. Importantly, the labor force grew by 18,500 in May and June. The New Orleans metro area’s unemployment rate also rose in recent months—to 7.2 percent in June from 5.7 percent in April. While a rising unemployment rate is typically associated with weakening economic conditions, in these circumstances it may also signal a job market that is reviving. In fact, preliminary data show that the New Orleans metropolitan statistical area’s unemployment rate dropped 3 percentage points in July, to 4.2 percent. The survey labor force estimates may be capturing the return of workers to the area, and the rising unemployment rate may indicate that more people are now looking for work. (To be considered unemployed, a person must be available for work and have made specific efforts to find employment during the survey period.)

Payroll Employment Gains and Losses by Sector in the New Orleans Metropolitan Area, October 2005–July 2006
Employees
in sector
(in thousands)a
Percent changeb
Government
90.5
–7.7
Leisure and hospitality
58.5
12.2
Retail trade
43.4
7.5
Professional business services
38.7
6.8
Health care
37.0
4.0
Manufacturing
28.3
0.8
Finance
26.3
3.1
Transportation
23.5
2.1
Wholesale trade
20.0
0.7
Construction
19.6
4.2
Educational services
10.4
1.3
Other services
10.3
1.8
Mining
10.7
2.4
Employment services
9.2
3.4
Information
7.6
–0.6
a As of July 2006
b From October 2005 to July 2006
Source: BLS, Federal Reserve Bank of Atlanta

Whether New Orleans can return to its pre-Katrina status depends on the return of evacuees, and a key to many evacuees’ return is a recovery in housing and the school system. Roughly one-third of the public schools in operation before Katrina were expected to be open by the end of August 2006. According to demographic estimates performed by New Orleans-based consultants GCR & Associates, by the end of August only about 25,700 students were expected to be enrolled for the 2006–07 school year compared with the pre-Katrina enrollment of 62,200. That number is expected to increase only marginally by January 2007, when the total enrolled is forecast to be approximately 28,500.

On the housing front, New Orleans–area permits for new residential construction have picked up and are near year-ago levels. In addition, permits issued primarily to homeowners for repairs increased nearly 200 percent from January to June 2006, according to New Orleans City Hall data published by the Brookings Institution.

On the road home
The longer-term solution to the housing situation in Louisiana may depend upon the success of The Road Home program, designed to assist displaced homeowners whose residences were significantly damaged or destroyed by Hurricanes Katrina and Rita. The program includes homeowner assistance grants, which will be awarded based on considerations that include the level of damage and the owner’s commitment to repair, rebuild, or relocate within the state. Homeowners also have the option of selling their home to the state, with no commitment to resettle in their community.

The Road Home, which is touted as the largest single housing recovery program in U.S. history, has preregistered over 100,000 homeowners. Eligible homeowners affected by Hurricane Rita or Katrina may receive up to $150,000. The program will help clear up the housing question in New Orleans, and its success will play a large part in determining the long-term recovery of the city.

Mississippi: Recovery under way
Total employment in Mississippi declined 22,300 in September 2005 from August. Since September 2005, the state has nearly recouped all those losses, adding a net 21,200 jobs through July 2006. Meanwhile, the state’s unemployment rate stood at 8 percent in July 2006 compared to 10.4 percent in September 2005.

Chart 1
Net Monthly Change in Payroll Employment,
Gulfport-Biloxi
chart
Source: BLS, Federal Reserve Bank of Atlanta
Chart 2
Permits for New Private Housing Units,
Gulfport-Biloxi
chart
Source: Bureau of the Census, Haver Analytics

In the Gulfport-Biloxi metro area, payroll employment declined 17,000 in September 2005. Gulfport-Biloxi shed an additional 8,300 jobs in December 2005 because many establishments in the leisure and hospitality industry—especially casinos—kept employees on the payrolls in the immediate wake of the storm but let them go in December. Since January 2006, the area has added 3,400 jobs, with over half of the increase coming in the leisure and hospitality sector (see chart 1).

The BLS Household Survey paints a very different picture for Gulfport-Biloxi than for New Orleans. The Gulfport-Biloxi labor force has remained steady since January, and the number of unemployed in the area has been cut in half from the September 2005 peak. The Mississippi Gulf Coast did not experience the long-term relocation of a large part of its population that occurred in New Orleans, making the labor market there more stable and in better shape to supply workers for recovery.

Permits for new single-family residential construction along the Mississippi coast are picking up and were above year-ago levels in the three most-affected counties (Hancock, Harrison, and Jackson) and at near-record levels in June in Gulfport-Biloxi (see chart 2). Although damage is still apparent nearly everywhere, damaged structures are being repaired, demolished homes and businesses are being rebuilt, and infrastructure repairs and new construction are under way all along the Mississippi coast. The planned reopening of several more coastal casinos will help employment increase, and the tourism industry is expected to improve as a result.

Looking to the future
Progress toward economic recovery is building momentum in Mississippi and improving in Louisiana. Employment is rising modestly in the hardest-hit cities of New Orleans, Gulfport, and Biloxi but is not near pre-Katrina levels. The future of these areas depends on continued cooperation between local, state, and federal officials as well as developers and citizen groups.

This article was written by Michael Chriszt, director of international and regional analysis for the regional group of the Atlanta Fed’s research department.