September 11, 2017

As if U.S. economic growth wasn’t difficult to predict, an economist’s job just became more difficult. Hurricanes Harvey and Irma will throw a wrench into the smooth patterns of forecasting for not only 2017, but well into 2018. If anyone in the market is looking for volatility, just take a look at your future GDP forecasts. The hits will be weighted in Q3 by Energy and Industrial shutdowns in Texas, and then in both Q3 and Q4 by more consumer-related activity in Texas and specifically, Houston. The next question is how quickly can the Florida tourism machine get back up to speed for the winter season. The current data is still very fluid and so guesstimates are just that. And are you keeping an eye on Hurricane Jose for this weekend?

To receive this weekly briefing directly to your inbox, subscribe now.

The economic data for 2017-18 is about to get very messy as you can see how quickly the Texas economy slowed after Harvey, and how damage estimates continue to rise…

@SoberLook: Harvey Damage Estimates Rose Sharply and Have Settled in the $60-100bn Range

(Goldman Sachs)

If the severity of storms is going to worsen in the future, maybe the auto manufacturers should bring back the Duck Boat…

Few American cities depend on cars as much as Houston. More than 94 percent of the city’s households have cars, second only to Dallas, the Cox Automotive consultancy says. Houston is even less amenable to walking, bicycle-riding and mass transit than freeway-mad Los Angeles, according to Walk Score, which promotes walkable communities.

Fourteen-lane highways link downtown Houston to its sprawling suburbs. Off-ramps are stacked five-high at some interchanges, inducing vertigo for motorists unschooled in driving Houston-style. Outside the city center, isolated islands of office towers are connected only by concrete and asphalt.

Cars are “everything here,” Hartmann says. “Cars are part of a person’s lifestyle. Most people in our area work 25, 30 miles from home.”

Houston is used to flooding. But it had never seen anything like Harvey, which dropped a year’s worth of rain onto the metro area. Flooded roads and neighborhoods left cars submerged and, in most cases, impossible to salvage.

“Almost every square inch of your vehicle has wires in it,” says Rebecca Lindland, executive analyst at Cox Automotive. “The materials are often flame-retardant, but they are not waterproof.”

(AP News)

Harvey has put the U.S. construction industry in a tight spot. Here are some numbers…

Before Harvey, construction workers across the U.S. were already in tight supply and material costs were rising. Houston is likely to face such a severe crunch that it could affect the national economy by pushing up material costs and driving down the U.S. unemployment rate for construction workers further, according to Robert Dietz, chief economist at the National Association of Home Builders. There were 225,000 unfilled construction jobs in June, near the recent high of 238,000 recorded in July 2016, according to a National Association of Home Builders analysis of Labor Department data.

In all, 10,000 to 20,000 workers could be needed to rebuild the homes damaged by Harvey alone, or 10% to 20% of the total number of residential construction workers in the Houston metropolitan area, according to the National Association of Home Builders.

(WSJ)

The Fed’s beige book noted certain tightness in the labor market last week. This will add to the challenge of rebuilding Houston and Florida…

Employment growth slowed some on balance, ranging from a slight to a modest rate in most Districts. Labor markets were widely characterized as tight. There were reports of worker shortages in numerous industries, most notably in manufacturing and construction. Firms in the Atlanta, St. Louis, and Minneapolis Districts said that they had turned down business because they could not find the necessary workers. Many Districts indicated that businesses were having difficulty filling openings at all skill levels. In spite of the tight labor market, the majority of Districts reported limited wage pressures and modest to moderate wage growth. That said, there were reports from firms in the Dallas and San Francisco Districts that labor shortages were pushing up wages.

(Federal Reserve Beige Book)

Meanwhile in Washington D.C., this about sums it up for the White House economic team…

To read the full 361 Capital Weekly Research Briefing, please click here

Subscribe Now to receive the Weekly Research Briefing in your inbox
Follow Us on Twitter @361Capital
Follow Us on LinkedIn