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Economics Group
Special Commentary
Mark Vitner, Senior Economist
mark.vitner@wellsfargo.com (704) 410-3277
Jamie Feik, Economist
jamie.feik@wellsfargo.com (704) 410-3291
Hank Carmichael, Economic Analyst
john.h.carmichael@wellsfargo.com (704) 410-3059
Figure 1 Figure 2
Houston MSA Population Growth Contribution to U.S. Real GDP Growth by MSA
Top 20 Metro Areas, Contribution to Growth From 2010 to 2015
Total losses are
In Thousands
210 210 Houston likely to be in
New York
180 180 Los Angeles the ballpark of
Dallas
150 150 San Jose $90 billion
San Francisco
Chicago
120 120
Seattle
Miami
90 90 Atlanta
Boston
60 60 Minneapolis
Denver
30 30 Austin
San Diego
0 0 Detroit
Philadelphia
-30 -30 Charlotte
San Antonio
Nashville
-60 -60
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 0% 1% 2% 3% 4% 5% 6% 7%
Source: Census Bureau, U.S. Department of Commerce and Wells Fargo Securities
4% 4% Thousands
8%
3
2% 2%
6%
0% 0%
2
-2% -2%
4%
-4% -4%
1
2% Unemployed: Jul @ 0.2 (Right Axis)
-6% QCEW: Yr/Yr Pct. Change: Mar @ -0.1% -6%
Employed: Jul @ 3.1 (Right Axis)
Nonfarm: Yr/Yr Pct. Change: Jul @ 1.7%
U.S. Nonfarm: Yr/Yr Pct. Change: Aug @ 1.5% Unemployment Rate: Jul @ 4.8% (Left Axis)
-8% -8% 0% 0
91 93 95 97 99 01 03 05 07 09 11 13 15 17 90 92 94 96 98 00 02 04 06 08 10 12 14 16
2
Impact of Hurricane Harvey WELLS FARGO SECURITIES
September 08, 2017 ECONOMICS GROUP
Source: National Flood Insurance Program, Insurance Information Institute, U.S. Department of
Commerce and Wells Fargo Securities
Homeowners without flood insurance can apply for federal disaster relief, but the funds received
are typically only low interest rate loans from the government. This essentially is taking out a
second, lower-cost mortgage on your home, which could create issues for those who already have
large mortgage balances or have already tapped into home equity lines during times of financial
hardship. After applying for federal grants or loans, assuming the request is approved, the funds
could be delayed, leaving families without a permanent home for an extended amount of time.
Following Hurricane Katrina, many homes were abandoned due to the inability of homeowners to
repair damages, especially those with large mortgages.
In addition, those with flood insurance are not quite out of the water yet. The NFIP is currently NFIP claims are
around $24 billion in debt stemming from hurricanes Katrina, Rita and Sandy. Before Katrina, estimated to be
the NFIP was charging premiums in the Gulf of Mexico that were consistent with a low between
probability of floods, which clearly turned out to be off base. With the lower premiums being paid, $7 billion and
the program ran out of money. Risk Management Solutions, a risk modeling company, estimates $10 billion
between $7 billion and $10 billion in insurance claims from the NFIP, which equates to about
$65,000 per claim and approximately 100,000 to 150,000 claims. The U.S. Treasury Department
extended the program a line of credit following Katrina and the availability on that line is now just
$5.8 billionwell short of the estimated damages that will be realized by Hurricane Harvey. This
means claims will most likely be delayed from the NFIP as well, and the federal government will
need to extend more funds to the program.
3
Impact of Hurricane Harvey WELLS FARGO SECURITIES
September 08, 2017 ECONOMICS GROUP
This week, a bipartisan deal was struck to approve additional funding to the Federal Emergency
Management Agency (FEMA) and suspend the debt ceiling issue until Dec. 8. The separate bills
essentially will fund the federal government for the next three months and provide $15.3 billion to
FEMA in preparation for aid that will be necessary for damages associated with Hurricane
Harvey, as well as Irma, which, as of this writing, is threatening South Florida.
Ultimately, the small percentage of homes covered by the NFIP in Houston and the financial
Houston should shortcomings of the program means taxpayers and impacted households will likely end up paying
get up and the majority of repair bills. Those who cannot or will not repair their own homes could be forced
running fairly to abandon them. This may result in reduced population growth in Houston, which had been one
quickly. of the nations fastest growing major metropolitan areas. A drag on personal spending in the area
Rebuilding will is likely as well, and we could see stricter building codes and tighter zoning requirements put in
take much place to reduce the risk of future storms. With much of its economy tied to the capital-intensive
longer. energy business, Houston should get up and running fairly quickly but output will not be back at
full strength for some time. Rebuilding will take much longer, as is typical following a large-scale
flood. Insurance and federal aid will need to be sorted out before structures can begin to be
repaired. Moreover, the extent of damages inflicted on the area may cause some businesses to
reexamine their supply chain and push some investment that would have gone to Houston to
other parts of the country.
4
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