Buyers can expect the after-effects of the 2017 hurricane season to linger into the final months of the year, mainly in the form of higher transportation costs and yet another injection of uncertainty into the short-term U.S. manufacturing outlook. A recent report estimates the cost of the storm damage to the U.S. economy at a combined $90 billion to $130 billion—with Hurricanes Harvey and Irma ranking as some of the most destructive storms in U.S. history.
“We currently estimate that the damage from Hurricane Harvey will total somewhere between $60 billion to $100 billion, making it the second most destructive storm on record after Katrina,” Patrick Newport, executive director, U.S. economics for industry researcher IHS Markit, said in the October report. “Irma, at $30 billion, will rank sixth.”
Harvey hit the Houston area in late August, followed by Irma, in Florida, in early September. Both storms slowed supply lines in the affected areas, and some delays remained in place into October. IHS pointed to slower rail and port operations in the Houston area in particular, and transportation rates that remained elevated into the fall. This will translate into higher transportation costs throughout the supply chain for the remainder of the year, the research group said.
“Tightening in freight capacity, even before the hurricanes hit, will have an effect on increased transportation costs in the third and fourth quarters of 2017,” according to the IHS report. “Demand for flatbed and specialized trucks will increase.”
Uncertainty Still Looms
On a broader note, the storms have injected yet another shot of uncertainty into an otherwise improving market, according to economists at the Manufacturers’ Alliance for Productivity and Innovation, a group that represents makers of everything from textiles to consumer electronics and industrial machinery.
“The combined impact of Hurricane Harvey … and Hurricane Irma … adds a significant element of uncertainty to the late 2017 and early 2018 outlook for U.S. factory sector performance,” Cliff Waldmann, chief economist for the MAPI Foundation, the organization’s research arm, wrote in an October 24 report.
Both MAPI and IHS Markit point to the chemical industry as one of the sectors most affected by the hurricanes, with MAPI expecting just a 1.1% increase in the chemicals market for 2017 before a return to acceleration in the next few years. In particular, the hurricanes shut down production of key chemicals used in the production of polyethylene (PE), the world’s most-used plastic. The situation has led to price increases that will be felt throughout the supply chain, according to an IHS Markit report that points to construction, automotive, and electronics industries as those most likely to feel the effects because of their heavy dependence on PE for plastics components in their products.
“Chemical product supply chains that were already in tight supply (for example, propylene, polyethylene, caustic soda) will see additional tightness perhaps lasting into the first quarter of 2018,” according to IHS. “A number of the chemical products will see price increases cascading through their supply chains into the first quarter due to an exacerbated tight supply and elevated costs due to recovery and feedstock cost increases.”
Despite the short-term concerns, MAPI’s overall growth forecast remains unchanged from earlier in the year; the group predicts a moderate 2.2% increase in GDP through 2020. This is due largely to an improving global economy and the nearly year-long fall of the still elevated dollar, according to Waldman. And for now, a few key subsectors, including chemicals, will lead that growth over the next two years.
“While there are no stellar growth leaders in the still lackluster manufacturing picture, machinery, chemicals, aerospace, and computers will continue to be catalysts for improving manufacturing performance,” Waldman wrote. “These will be the subsectors most responsible for moving U.S. manufacturing beyond the nearly stagnant growth in the 2013-2016 period.”