Region’s Recovery May Be Slow
Like other disaster-ravaged areas, Louisiana and Mississippi are expected to eventually see massive rebuilding efforts that could boost their economic growth.
But unlike Florida, which is undergoing a speedy recovery from an onslaught of hurricanes last year, the two southern neighbors could find their revival much slower and tougher.
That’s because a recovery’s speed and strength can depend on several factors, including wealth, the condition of a disaster area’s infrastructure, population growth -- and even presidential politics.
The area hit by Hurricane Katrina has few, if any, of these factors going for it, economists said.
Florida’s recovery from hurricanes last year was helped in part by the state’s relative affluence and its status as a battleground state in the presidential election. The state is now adding jobs at a faster pace than the nation, thanks partly to rebuilding efforts.
The San Francisco and Los Angeles areas bounced back from earthquakes in 1989 and 1994 in part because their key economic engines -- including technology and finance in the Bay Area and entertainment and trade in the Southland -- were not severely hampered.
But Louisiana and Mississippi have two of the nation’s lowest per capita incomes. And their economic engines -- energy, ports and tourism -- all suffered massive blows.
“If you add it all up, it feels like Katrina will be the most economically costly natural disaster in our history,” said Mark Zandi, chief economist for Economy.com, a research firm in West Chester, Pa.
President Bush acknowledged that Wednesday when he said, “We are dealing with one of the worst natural disasters in our nation’s history,” and recovery will take years.
Still, economic activity almost always picks up after a disaster, thanks to rebuilding efforts supported by government aid and insurance, said Mark Vitner, senior economist at Wachovia Corp., a banking company based in Charlotte, N.C. Stronger growth won’t be hard to achieve in Louisiana -- its economy has actually shrunk since 2000, he said.
But that doesn’t mean a devastated region will end up better off, because a lot of wealth gets wiped out, Vitner said.
“Rebuilding efforts do provide a lift to measurable economic activity, but what we rarely see in the data is the immense permanent loss of wealth,” Vitner said. In the case of Mississippi and Louisiana, “the loss of wealth will severely hinder the recovery efforts.”
Among key factors that can determine the economic rebound from a disaster:
* Damage to a region’s economic engines. Hurricane Andrew in 1992 inflicted severe damage to certain parts of Miami, but didn’t knock out the city’s key economic drivers, Zandi said.
The 2001 World Trade Center terrorist attacks hurt Wall Street’s financial infrastructure, but backups allowed trading operations to continue a few days later, said Nariman Behravesh, chief global economist at Global Insight, a consulting firm in Waltham, Mass.
No such luck with Katrina. Its economic victims of energy, trade and tourism have no alternative systems to replace them.
“All three have been laid low and might remain off line for some time,” Zandi said.
* Damage to physical infrastructure. In last year’s Florida hurricanes, electricity in affected areas was knocked out for three to four weeks, but other infrastructure was largely intact, Zandi said. “Once the power is up, things get going pretty quickly,” he said. The Los Angeles area suffered only a few highway closures and temporary power outages after the 1994 Northridge quake.
No such mercy from Katrina. It appears to have knocked out many of the area’s major bridges, electrical systems and other key infrastructure.
* Affluence. Typically only 50% to 60% of disaster losses are insured, so people often draw on their own finances to rebuild, Vitner said.
It helped that Florida is one of the nation’s wealthiest states. That won’t work as well for Katrina’s victims. Mississippi has the nation’s lowest per capita income, while Louisiana ranks 42nd, Vitner said.
“That means that folks who are underinsured or uninsured won’t have their own means to repair properties,” Vitner said.
A lack of money also reduces victims’ incentive to return and rebuild, he said. After back-to-back hurricanes and floods in 1999 hit eastern North Carolina, a relatively less affluent part of the state, many victims simply took their government aid and moved to Raleigh and Charlotte, Vitner said.
Adding to the difficulties facing New Orleans: People are even less likely to have flood insurance than other types of coverage, Vitner said.
* Availability of resources. When Hurricane Andrew hit Florida in 1992, the nation’s economy was coming out of a recession, leaving ample supplies of unemployed construction workers and building materials, Vitner said.
That’s not the case now. The nation’s booming housing industry has produced shortages of roofing material, cement and workers, Vitner said. “If you go to Florida today, you’ll still see thousands of homes with tarps over their roofs,” he said.
* Population growth. A fast-growing state can draw on new residents to help bail out victims. If victims lack insurance or money to rebuild, at least somebody else will buy their property, Vitner said. But without newcomers, “the property might sit on the market for awhile.”
That could happen after Katrina. Louisiana’s population is only growing 0.2% a year, while Mississippi’s, at 0.5%, isn’t much faster, Vitner said. By contrast, Florida’s is ballooning by 1.9% a year. “Florida’s population grows 10 times faster than Louisiana’s every year,” Vitner said.
* Presidential politics. Florida was a battleground state in 2004, so government aid was quick and generous, Zandi said.
“Nobody wanted there to be any stories that people weren’t getting any help,” Zandi said. Florida recovered nearly 100% of its Hurricane Ivan losses through government aid and insurance -- 50% to 70% is more typical in hurricanes or quakes, Zandi said.
In fact, he said, the government now is trying to get some of its money back from victims who allegedly applied for multiple relief loans or committed other fraud.
By contrast, North Carolina in 1999 wasn’t a swing state and President Clinton wasn’t running for reelection. He promised a water treatment plant, Vitner said, but it was never built.