J: After accidentally realizing a dream of many years of seeing Yellowstone National Park in the snow (in an unseasonably early cold-and-snow event this week), it seemed like a good idea to opine on the impacts on GDP and other economic data from the solar eclipse, and Harvey, Irma, Jose and Maria. (L: We're in Big Sky, MT this week where Jim is giving a speech. It was in the 70's here last week, 30's with snow this week. Yikes!)
J: Few people thought about what happened to GDP on August 21 when millions of people were given (or took) the day off to experience the first total solar eclipse to be seen only in what is now the US since 1257. The exception was the firm of Challenger, Gray and Christmas (employee outplacement assistance) which estimated the cost at $694 million.
That seems way too low to me, but even a number ten times larger (more reasonable) would make a tiny blip in US GDP of $19.2 trillion in nominal (current dollar) terms. That equates to about $52.7 billion a day.
Hurricane Harvey had a much bigger impact. The GDP of just the Houston MSA is about $10 billion a week. It includes very large proportions (over 25 percent) of oil refining and petrochemical production (around 65 percent).
Having Houston and other Gulf Coast facilities shut down for a week or more probably took 0.2-0.5 percent off of third quarter real GDP. To give some evidence of this, the Atlanta Fed's GDP Now estimate for the third quarter (July-September) has dropped from 4.0 percent in August to only 2.2 percent on September 19 (both at seasonally adjusted annual rates, as are all numbers unless we say otherwise).
The Texas economy is about nine percent of the total US and the area clobbered by Harvey was about 30 percent of that. That's more than 2.5 percent of US GDP wiped out for at least a week.
Florida is the fourth-largest state in GDP after California, Texas and New York. It long ago passed New York in population, but it is still way behind in terms of GDP. In the first quarter of 2017, New York accounted for 7.9 percent of US GDP and Florida was 5.1 percent, at $955.6 billion.
Most of Florida was shut down by Hurricane Irma in mid-September, so that will lower third quarter growth as well. Rebuilding efforts will boost GDP in the fourth quarter and throughout 2018.
All three impacts are temporary and do not change the continuing sluggish growth trend of the US economy. As the late French economist Frédéric Bastiat wrote in his famous 1850 essay, "That Which Is Seen and That Which Is Not Seen," there is no net benefit to the economy from destruction followed by rebuilding. It looks like there is a positive contribution because GDP does not measure the destruction of capital (e.g., buildings and infrastructure), but does measure the stimulus from rebuilding.
To get real GDP growth to break out of its 2.1 percent-a-year trend since the last recession ended in June 2009 would take some big boosts from new policies like tax reform and big reductions in the net costs in excess of benefits of regulations. Congress and President Trump have talked a great deal about these things since January 20, but so far have delivered very little.
Rebuilding from weather damage and catching up from the production lost on August 21 will boost reported real GDP growth for at least the next five quarters. However, it won't permanently raise the trend. That will take policy improvements or stimulus from faster economic growth in the rest of the world, which does seem to be happening.