How and when will the economic effects of Hurricane Katrina be reflected in BEA’s estimates?
Because Hurricane Katrina struck the states surrounding the Gulf of Mexico in late August, 2005, BEA’s estimates of economic activity for August 2005 and for the third quarter of 2005 will reflect the economic impacts of the hurricane.
The first BEA estimates for the period affected by Hurricane Katrina are the following releases scheduled beginning with September 30:
September 30 |
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Personal Income and Outlays, August 2005 |
October 13 |
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U.S. International Trade in Goods and Services, August 2005 |
October 28 |
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Gross Domestic Product, 3rd quarter 2005 (advance) |
November 30 |
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Corporate Profits, 3rd quarter 2005 (preliminary) |
December 16 |
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U.S. International Transactions, 3rd quarter 2005 |
December 19 |
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Tourism Satellite Accounts, 3rd quarter 2005 |
December 20 |
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State Personal Income, 3rd quarter 2005 |
BEA will provide some information on its estimates of loss of property and on insurance at the time its estimates are released.
Natural disasters like Hurricane Katrina have two types of major economic effects. BEA’s estimates reflect both types of effects.
Destruction of property. Estimates of property losses and of the associated insurance claims are incorporated as one-time effects.
Disruption of the flows of production, income, and spending in the economy. Typically, these flows are reduced in the short term and are boosted later. For example, consumer spending may be reduced immediately by a disaster, and construction activity may be stimulated somewhat later. These disruptions are generally embedded in the data on which the estimates are based.
The impact of the natural disaster on GDP growth and many other estimates cannot be separately distinguished, however, because the source data record actual activity and do not attempt to separately identify the effects of the disaster.
For more information on how disasters are treated in the national accounts, see the BEA's Frequently Asked Questions (FAQ).
For comparison, a table that identifies these impacts in more detail for Hurricanes Charley, Frances, Ivan, and Jeanne that struck the United States in the third quarter of 2004 is available. | PDF
See also, How are insurance services measured in GDP?
How and when will the economic effects of Hurricane Katrina be reflected in BEA’s regional income and product accounts?
1. How is State Personal Income affected by natural disasters such as Katrina?
Natural disasters like Hurricane Katrina have two types of major effects on state personal income: they destroy property, and they disrupt the flow of income in the economy: typically reducing it in the short term and boosting it later. BEA’s estimates reflect both types of effects.
Disruptions to the flow of income are generally embedded in the data on which the estimates are based. The impact of the natural disaster on personal income growth cannot be separately distinguished, however, because the source data record actual activity and do not attempt to separately identify the effects of the disaster. Nonetheless, in the short run, compensation in many industries is likely to decline in areas directly hit by the hurricane because of a decline in production, while in some industries involved in the cleanup and repair (construction and health care and social assistance) compensation may increase. Similarly, compensation could increase in areas that are the recipients of evacuees, both from the increased activity to support these evacuees (e.g. doctors moving into the area) and to the extent that the evacuees themselves might find employment.
Estimates of property losses and of the associated insurance claims are incorporated as one-time effects: They increase both the consumption of fixed capital and business transfer payments. Damage to the property of household enterprises affects proprietors' income and rental income. They are reduced by the amount of uninsured losses measured by consumption of fixed capital less business transfer payments. Damage to consumer durable goods affects only personal current transfer receipts. It is raised by the amount of the insured losses for these goods.
A table that identifies the impacts of the 2005 hurricanes is available. | 
PDF: Table (8 kb)
2. How is Gross State Product (GSP) affected by natural disasters such as Katrina?
GSP is a measure of a state’s current production of goods and services and it will reflect any disruption in that production. It is not directly affected by the loss of property (structures and equipment) produced in previous periods. GSP may be affected indirectly by the actions that consumers, businesses, and governments take in response to disruptions in production or to the loss of property, but these responses are not amenable to precise quantification; moreover, the responses may be spread out over a long period of time. For example:
- Rebuilding activity, which may occur over many months following a disaster, will typically be reflected in the regular source data used to estimate residential and nonresidential construction. There is no way to disentangle the disaster-related rebuilding from other construction activity.
- Tourism and other types of consumer spending may be canceled or postponed in the face of a disaster; whether canceled or merely postponed, the effects will be embedded in the source data that are used to estimate GSP.
3. When will the economic effects of Hurricane Katrina be reflected in the State Personal Income estimates?
The estimates of personal income for the third quarter of 2005, which will be released December 20, 2005, will reflect the effects of Hurricane Katrina. This storm caused extensive damage, particularly in Louisiana, Mississippi, Alabama, and Florida; as a result, several components of state personal income could be affected.
Rental income of persons and proprietors' income will be reduced to the extent that there are uninsured losses of property owned by household enterprises. Business payments to persons, a component of personal current transfer receipts, will increase for the quarter, to the extent that there are net insurance settlements for damage to consumer durable goods.
Other effects of the hurricanes are embedded in BEA's source data and will not be identifiable, so BEA will not attempt to quantify them. However, employment statistics from the affected states—primarily Louisiana and Mississippi—may not be able to report employment accurately due to the significant disruption to the businesses in the affected areas. This is an area BEA will watch carefully.
4. When will the economic effects of Hurricane Katrina be reflected in the GSP estimates?
Because Hurricane Katrina struck the states surrounding the Gulf of Mexico in late August, 2005, the prototype accelerated GSP estimates for 2005 that will be released on June 6, 2006, will reflect the initial economic impacts of the hurricane. Since the impacts of Hurricane Katrina were so extensive, and the rebuilding of the infrastructure in the Gulf states may span many months, the GSP estimates for future years may also reflect economic impacts of the hurricane on these states.
5. Can RIMS multipliers be used to estimate the economic impacts of hurricanes and natural disasters such as Katrina?
In general, yes. In fact, RIMS was used to analyze the economic impacts of Hurricanes Andrew in 1992 and Charley in 2004, which, while devastating to those regions’ residents, were not as catastrophic as Katrina. However, using RIMS multipliers for analyzing the impacts of natural disasters requires care, because natural disasters can cause substantial changes to the structure of the local economy.
In the case of the New Orleans metropolitan area, as we now know, there was severe damage and flooding of residences and businesses in many parts of the area, and mandatory evacuation has been ordered for the entire city. Such a dramatic alteration of the structure of a local economy makes using multipliers from regional input-output models like RIMS highly problematic. Regional multipliers reflect the industry linkages in a local economy at a given time, and so are best used to study less catastrophic events where those linkages are for the most part preserved. See the RIMS User Handbook for more details on what factors need to be taken into account when using RIMS multipliers: http://www.bea.gov/scb/pdf/regional/perinc/meth/rims2.pdf.
In the case of other local areas in the Gulf Coast region, RIMS multipliers can be used to estimate the economic impacts of Katrina, as long as the damage did not result in major changes to the structure of the local economy. For example, if tourism declines because Katrina damaged some, but not all, of the casinos or hotels in the Gulfport-Biloxi area, then RIMS could be used to estimate the impact on the area of the decline in tourism. Similarly, if some of the manufacturing or other firms in the area were forced to close due to Katrina, RIMS multipliers could be used. Please refer to the RIMS documentation on BEA’s web site for more details: http://www.bea.gov/regional/rims/.
6. How large is the region in the total U.S. economy?
Louisiana’s gross state product is about 1.2 percent of U.S. GDP, but the state ranks first in the U.S. in terms of specialization in water transportation and third (behind Alaska and Wyoming) in terms of specialization in oil and gas extraction. While the New Orleans-Metairie-Kenner Metropolitan Statistical Area (MSA) only accounts for about 0.4 percent of U.S. personal income, the MSA accounts for over one-third of Louisiana’s personal income.
Mississippi’s gross state product is about 0.7 percent of U.S. GDP. Together, the Gulfport-Biloxi and Pascagoula MSAs account for 15 percent of Mississippi’s personal income.
Alabama’s gross state product is about 1.2 percent of U.S. GDP. The Mobile, Alabama MSA accounts for about 8 percent of Alabama’s personal income.
7. How can I obtain further information about BEA’s regional income and product accounts?
