While natural and manmade disasters result in loss of life, property damage and dislocation, they also provide a surge in short-term economic activity—especially for the construction industry.
By size and scope, Hurricane Katrina ranks as the most expensive natural disaster in the history of the United States. According to McGraw-Hill Construction, the total cost of devastation is estimated at $125 billion, substantially more profound than the $37 billion of damage Hurricane Andrew caused in 1992.
Prior to Katrina, 484,000 people called New Orleans home, making it the nation’s 35th largest city. By 2008, the city’s population was estimated at less than 340,000. Entire towns in Harrison County, Miss., were wiped out, with officials estimating the storm rendered one-quarter to one-third of the local population homeless.
By April 2006, the Bush administration mobilized $105 billion for repairs and reconstruction in the region, and some of that work continues today. Although most of the flooding damaged residences along the Gulf Coast, the storm also ruined U.S. Route 90 and required a number of other roadways and bridges to be rebuilt. Additional demand was created for environmental projects, including a $500 million project to clean up drinking water systems in New Orleans.
The economic effects of Hurricane Katrina spread well beyond the Gulf region as oil production was interrupted and gasoline prices skyrocketed. The burdens imposed during this period contributed to a transition from a robust economy with self-sustaining growth to a decline that ultimately culminated with a recession beginning in December 2007.
Deepwater Horizon Oil Spill: A Reverse Economic Impact
Thus far, the economic impact of the oil spill triggered by a blowout on a $560 million BP drilling rig in the Gulf of Mexico has been largely negative. Estimates indicate the disaster released 50 million gallons to 145 million gallons of oil into the Gulf, potentially placing it on par with the Ixtoc I spill of 1979 that released 140 million gallons of oil. By comparison, the Exxon Valdez disaster in 1989 released less than 11 million gallons of oil off the coast of Alaska.
A recent study by Moody’s estimates year-end losses at roughly $1.2 billion in terms of gross domestic product (GDP), as well as 17,000 jobs in the Gulf states. This represents less than 0.1 percent of national GDP, supporting the notion that much of the damage can be classified as environmental rather than purely economic.
Ongoing cleanup efforts largely have compensated for lost business as fishermen have been converted into cleanup workers and tourists have been partially replaced by members of the media. Of course, once the cleanup comes to an end, a more significant downdraft in overall economic activity may occur.
The aspect of economic impact that has garnered the most attention, at least politically, is the Obama administration’s current moratorium on deepwater drilling in the Gulf. Oil and gas infrastructure accounts for up to 20 percent of output in certain Gulf Coast metropolitan areas. If the moratorium holds, many workers will not be able to return to their previous jobs.
The loss of oil and gas production and its direct and indirect effect on nonresidential construction likely would overwhelm any positive impacts associated with rebuilding. Although the construction of sand berms along the Louisiana coast is encouraging in the short term, this business eventually will taper off.
Over time, the oil spill in the Gulf likely will accelerate the push for clean, renewable energy—a transformation that will, in turn, support the green building industry as well as construction of solar panel manufacturing plants, nuclear power plants and other infrastructure tied to reducing America’s fossil fuel dependence.
Talk of green construction was rampant before the BP oil spill; expect the crisis to substantially amplify interest in sustainability.