A Storm to Remember:
Hurricane Harvey and the Texas EconomyEconomic Impact

The extent and cost of Harvey’s destruction were significant. But when balanced against the anticipated increase in business activity due to reconstruction and restoration efforts, combined with an influx of funding from federal aid and insurance payments, the effect on the state’s economy may be much less severe than many expected.

Gains from increased construction activity and associated spending undertaken to repair and rebuild should help offset losses in the months and years to come.

During and immediately following the storm, Texas communities in the affected areas faced costs associated with emergency response, evacuee shelters, debris removal and infrastructure repair. Many suffered damage to public buildings and vehicles that must be repaired or replaced. Many businesses, in addition to repairing damaged facilities, must replace some or all of their equipment and inventory.

Meanwhile, thousands of evacuees staying in hotels or rental units faced temporary housing costs and, upon returning to their flood-damaged homes, began replacing floors and sheetrock and purchasing furniture, household goods, electronics, clothes and vehicles.

Harvey disrupted a broad range of industries, but manufacturers represented a large share of them.¹⁸ Although many were back in operation within five or so days, some experienced significant disruptions for two weeks or more.¹⁹

Based on information submitted to the Comptroller’s office, federal, state and local governments, along with private insurers, had spent or committed about $31 billion for Harvey-related disaster relief and rebuilding as of Nov. 30, 2017. This number is likely to rise. Money for reconstruction efforts will come primarily from the Federal Emergency Management Agency (FEMA), state and local governments and private insurance (Exhibit 2).

All of this spending will spur economic growth.

Without the boost from rebuilding, Texas’ gross state product (GSP) would have required four years to recover to pre-Harvey expectations; personal income would require five years. Single-family residential housing stock would take seven years to rebound to normally expected levels, while non-residential building stock in the affected areas would require four years for recovery.²⁰ With the help of federal, state and local government aid, however, all of these measures should recover in the second year after the storm, and Texas should gain about half as many jobs as it would have lost in the absence of government aid.

Exhibit 3 displays the estimated indirect losses and gains to Texas GSP resulting from Hurricane Harvey. In all, the total estimated net impact (losses plus gains) is a $3.8 billion loss in GSP in the first year following the storm. (To put this loss in perspective, Texas’ GSP was $1.6 trillion in 2016.)²¹

Recovery will stimulate economic activity, producing an estimated $800 million cumulative gain in GSP over three years.²²

Exhibit 3: Net Economic Impact of Hurricane Harvey on Texas Gross State Product(in billions of dollars)

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It’s also possible to assess economic costs on a local basis by examining the counties included in Texas’ councils of government (COGs), multi-county regional planning bodies. Harvey affected eight COG regions — the Houston-Galveston, South East Texas, Golden Crescent, Coastal Bend, Brazos Valley, Deep East Texas, Capital and Alamo areas — and 41 counties within them were designated as disaster areas (Exhibit 4).

The storm hit the 13-county Houston-Galveston COG region hardest, causing an estimated $16 billion economic loss during the first year. FEMA designated all 13 counties in this region as disaster areas. The Coastal Bend, South East Texas and Golden Crescent COGs can expect first-year losses projected at $350 million to $800 million each. The Alamo Area, Capital Area and North Central Texas regions, by contrast, stand to gain in Harvey’s wake, each with an estimated $1 billion to $2 billion in additional economic activity.