Moody's Talks - Inside Economics - Hospitality Jobs and Hurricanes

Episode Date: September 3, 2021

Mark and Ryan welcome back Adam Kamins, Director of Regional Economics at Moody's Analytics, to discuss the August job numbers, the Delta variant, and economic costs of Hurricane Ida. Full episode transcript can be found here. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics. I'm joined by two of my colleagues. Ryan, Ryan Sweet, Ryan's the director of real-time economics. Big day for Ryan, Jobs Day. We'll come back to that in just a minute. A lot to talk about there. Of course, I'm talking about the employment report for the month of August. It's a little disappointing, but we'll come back to that. And then Adam Kamens, Adam runs our regional economic analysis. And he's here today to help dissect the jobs numbers, a lot to talk about there regionally. And also given Ida, Hurricane Ida, which really made a mess of things here in Philadelphia and much of the country. We want to talk about that.

And also, just more broadly, about how we assess natural disasters and consider their economic impact. and Adam, both Adam and Ryan have done a lot of work in this area over the year. So we're going to talk about that as well. Did you guys get any damage from the, from Ida? Did you navigate things pretty well or any problems? We held up fine. The Brandywine Creek, which is right near us, really overflowed, flooded a bunch of businesses. And I just can't imagine.

I mean, we got, I felt like we got hit hard. I can't imagine what Louisiana was. went through when that thing made landfall. I mean, that was a massive storm. I know. I mean, we didn't really have the wind. We had a little bit of wind, but it was really the rain. My gosh. Yeah, it was a lot of rain. Yeah, I have a, I'm on high ground my home, but I have a stream. And when I say a stream, I mean a stream, just like a stream, you know, maybe 30, 35 years downhill. And that thing was raging. I've never, I've been in this home more than 20 years. I've never seen anything like it. My next-door neighbor who's on lower ground lost all of their backdoor stuff, you know, chairs and benches and kids play things and all gone, all gone. Pretty, pretty amazing.

Adam, did you navigate pretty well through the whole thing? We did all right. The worst effect for us was that the kids had to stay home yesterday. So it got a little ugly in our house. But other than that, no damage. Oh, they couldn't go to school. No, they closed schools yesterday. Oh, wow. Okay. Well, we'll come back to Aida. in the economic damage. I, you put together some estimates. Well, maybe give us a preview. What's the bottom line estimate of the property damage and the lost economic output for the Northeast?

So the top, sort of the putting it all together, kind of the storm as a whole, it was 40 billion, give or take, about five or six billion. So the range that we were publishing right now is $34 to $48 billion. 48. Now, of that $48 billion, how much is property damage in the Northeast? About half of that, I would say. So the majority of the damage is property, right? The majority of the number is property damage. And then within that number, most of that is now from the Northeast. So let's just round. You're saying $50 billion for the total cost. That's property damage and lost economic output. But $25 billion or so is property damage in the, the Northeast. More or less. That's the high end of the range, but that's right. Yeah. I bet that number's going to rise. It's going to rise. Yeah, I don't believe that number. Sorry, but we'll come back to how you do that calculation. I just got a call for my sister whose son lives in Philly, and he had a car

in a lot. The family car was in the lot, and he was over for some reason, oh, they have a home down in Philly, so he was staying down in Philly. the car was completely lost, flooded out in this lot, in the middle of downtown Philadelphia. Hard to imagine that would be the case. So I don't know. That just doesn't be right. But anyway, we'll come back to that. We'll come back to that.

You can defend your numbers. But talking about numbers, that job's number, what the heck, Ryan? What's going on? Tell us, tell the listener to summarize what were the numbers and your interpretation. I do have to give you and Dante credit. ADP this month was very close. It was well below the consensus. So the consensus was for roughly 725,000 net gain in non-form employment.

It came in closer to 230,000. I'm not too concerned. We knew job growth was going to slow. We were looking for 500,000, which was at the very low end of the consensus range. there's a lot of things in August. You had the surge in COVID cases, and you saw that in leisure hospitality, which created no new jobs in August. And you also have this August effect.

Death, taxes, and a below consensus August employment number are the only things guaranteed in life. And it came to fruition again. Unemployment rate fell to 5.2%. Labor first participation rate was unchanged. So all in all, it was a soft number or soft report, but, you know, as we've talked about, The job numbers are going to bounce around. They're going to be here and there.

Over the last three months, we're still creating more than 700,000 jobs on average. And that's a very strong number. Yeah, yeah. So 235. And you, ADP, you're right. Just to let the listener in on this, ADP is a human resource company. We have a partnership with them.

We take their data, which they provide to us for 23 million employees. that they process payrolls for, and we construct an estimate of what we think the BLS number is going to be for the private sector. It doesn't include government. And we came in at what? We came in at, I can't remember,

350 or something like that. Right around there. Yeah. And that's a little on the high, still on the high side compared to what actually happened. Yeah. But your number was, your estimate was also closer than consensus for sure.

You were at 500K, I believe, something like that. Yeah, we're among the lowest in the consensus range. I mean, it still came in a lot weaker than I thought. The big surprise to me was leisure and hospitality. I thought COVID would hurt, but I didn't think it was going to have that significant of an impact. I mean, when you look at the industry detail, all the industries that are very sensitive to social distancing or COVID cases really, really underperformed in August. So I think, you know, COVID is made a big mark on August job growth.

Yeah, I think the Delta variant was all over the report. I mean, you know, restaurants, employment at restaurants, I think that was down during the month. And leisure and hospitality in aggregate, which includes restaurants, was flat. And that sector had been adding several hundred thousand jobs per month, as it kind of kind of normalizes coming out of the pandemic. That feels very much related to Delta. Also, the global supply chain disruptions created by Delta overseas, it feels like that's in the report, too, right?

Because there was a big decline in employment at motor vehicle dealerships. And that may be because they just can't sell cars because there aren't any cars to sell. Yeah, auto inventories, new car inventories are. near historic lows. And you can see it in the monthly vehicle sale numbers that we got. And this thing's just tanking like a rock. It's falling like a rock. It's down to 13 million annualized units. That's low. And it's not that consumers don't have the cash or can afford cars, is that there's just not enough cars out there to buy. And that's, you know, coming at the expensive sales. Yeah, that's another good statistic that came out yesterday. 13 million,

a little over 13 million vehicles sold in the month of August annualized. That's, that's, you know, just for context, kind of a typical sales level is about 17 million units annualized. And 13 million is, that's back close. It's not as bad as it was in the teeth of the pandemic recession, but it's down a lot. And that number, that number crushed our high frequency GDP model. So this is a model that we have that's, it's really like a bean counting approach. It takes all the source data that the Bureau of Economic Analysis uses to calculate quarterly GDP.

And we run it every day. And when you get new source data, you know, this thing can move a little bit here and there. It went from 5.3% at an annual rate down to 3.9% because of vehicle sales. It really hit consumer spending in the third quarter. Yeah, before we move on to Delta more broadly and what's going on with the economy, economy, but clearly jobs numbers suggest that Delta is doing real damage to the economy, the economic recovery. And I want to talk a bit more about, you know, under what scenarios could it undermine the

recovery, but we'll come back to that a second. I just want to ask you a bit about that comment you made about August employment gains always coming in on the soft side. Do you want to explain that a little bit? And, you know, what's the intuition or what's the logic behind why August? So the primary reason is that the response rate to the survey that the Bureau of Labor Statistics sends out to establishments always comes in low. So when you get a low response rate, typically you're going to see, you know, a low initial print, you know, a below consensus number. And then as they get more and more responses, you're going to see an upper revision.

So this number is disappointing, 2.30. but I would suspect by the time we get the second and the third revision, it's going to be higher. So on average, now this is pre-pandemic, the average revision between the first and the final estimate of August employment is positive 70,000. So maybe the pandemic juices that a little bit, but when it's all said and done, 230 is going to be the low end of the estimate. So you're saying if history is any guide, it may end up after revisions being 300K, not 230,000. And I mean, recently we've been seeing a lot larger revisions. I mean, last month, correct me from it was like $964, 964,000. Yeah.

Now it's $1.05 million. So, I mean, we're getting some big upper revision. So, you know, in the end, I don't think it's going to be as glaring of a disappointment. Still going to be a disappointment, but it's not going to be as bad as it looks right now. Right. I mean, in our forecast, our outlook, we have average monthly job growth over the next 12, more like 18 months of about 500K. So that assumes some months are going to be like last month when we got over a million

and some months like this month when we got 250K on average 500K. You still feel pretty comfortable with that? Yeah, on average, yeah. I think September, we'll get to this when we talk about Hurricane Ida, but odds are that's going to affect the September numbers. So we're going to see another month where a little mediocre job growth. And then I think we pick back up when we're on the other side of the Delta variant. the rebuilding begins to commence.

Okay. Hey, Adam, let me bring you in on the conversation. Anything you're observing around the job market regionally, any insights? I mean, are you noticing any weakness in, for example, the southeast, Florida, where the Delta is more of an issue? Are you observing any of that? We are, yeah. So I think, obviously, we don't have the August numbers, and we won't for a few weeks. but what some of the real-time data seem to be showing, right,

this is data from OpenTable on C to Diner Reservation, some Google Mobility data on retail and recreation and the amount of time that people are spending in those types of establishments, you've seen that fall off pretty noticeably in a number of southeastern states. So Florida, it's, although weirdly in the last week, the open table has shot up for Florida.

So actually, our back-to-normal index has gone way up there. But that kind of parenthetical aside, we've actually seen Florida, Louisiana, Mississippi, a number of states in the southeast really starting to fall off in the real-time data. There are kind of, there's some traces of evidence of that, even in the July numbers that were the beginnings of the Delta surge were happening, that those states were weakening. So there's definitely a relationship there that we're observing. Okay. Ryan, I'm guessing, you know, we typically play a game with the statistics where we specifically play a game with the statistics where we specifically, out a statistic that we think so important. I got a good one. Do you, is this, do you have a good one

that's related to the jobs numbers? Related to jobs? I don't want. Here's your hint. Here's your hit. You don't want it? Well, unless it's, unless it's apropos. I don't want it. It's related to the job number and it's related to the Delta variant. This is a big clue. Okay. Okay. Fire away. Adam, you ready? I'm ready. Five point six million. Okay. Five point six million. Is, Is that number of long-term unemployed? No. You were about to say that could be. Yeah, I know.

Then I saw myself, because I don't want to give you any... It could be. It could be pretty close to that number. Yeah, it could be. It was not the number I'm thinking of. It was not the number you were thinking of. 5.6 million. And it's also related to the Delta variant, you said.

Correct. Job market, Delta variant. Adam, any idea? And the Delta variant? I'm trying to think if it's something to do with cases or vaccinations or something. No, it's in the, it's actually written up in the labor market release. Oh, the BLS. Oh, I thought I read it. I didn't. It's 5.6 million. You got to read these things carefully. I know. I'm, I, I, I, you're down into the bowels of these reports. Yeah, look at the footnotes. Yeah. You want to give us one more

hint or you'll give it away probably at that point? We've talked about it before on the podcast. We have. Okay. Five. I don't know. Far away. What is it? It's a long-term unemployed. That's what I said. You're not paying attention. What are you trying to take my idea? 5.6 million. It's up from 5.2 million in July. And it's the number of people that were unable to work because of COVID, either shut down their employer or temporarily closed. Okay. That is a really good statistic to watch. So 400K increase in the month.

And it had been steadily declining. Has it since back last spring, has it risen at all? It's always been pretty much going to south. I think it's steadily declining, yeah. Okay, well, that's interesting. That's very interesting. So I thought that number kind of, as soon as I saw that, was like, this is this report, this week.

This is COVID. August effect, you know, small. It's all COVID. Yeah, right. Okay. Adam, I'm guessing you have a statistic you want to throw in as well, right, that you want to guess. Is it related to the job market?

You know, I had one. I think it's pretty obvious now, but I'm going to give you a little twist on this. I'm going to give you. But I don't want to hear it unless it's related to the job market. It's related. Well, I have one for later, too, but I'll save that. I have a natural disaster. That's later.

I can give you a job market. Okay, fair enough. Go ahead. All right. I'm going to give you two. And this is sort of related to what we were just talking about. So this might be the old underhand softball. Well, press your luck here.

I mean, come on. Give us one. Let's see if it's any good. And then we'll go under the two. Well, they're related. But, okay. Okay. Negative.26%.

Actually, negative 0.27%. Now we're going out two decimal places. It's from the jobs report, too. It's in the jobs report today. Yes. Yeah. And it's something that we're related to what we're talking about. The other number that is sort of a related number to that is 1.7%,

1.698%. They are two related metrics. It can't be anything with wages. Wages shot up in August. Yeah, no, it's not wage growth. And by the way, that wage growth number, that's all mixed, right? Correct. Yeah, I ignore that number.

We saw a big increase in wage growth in the month, and that's because we saw a lot of weakness in retail leisure hospitality, which are low-paying occupations jobs. And because this measure doesn't control for mix, we saw this big increase. So it's misleading. It's not that wage growth is weak. It's held up really well, done pretty well, but this number overstates the case to a significant degree. So it's not that.

Is it hours? I thought hours were changing. No, it's related. It's an employment number. Oh, it's not in the report. It's a change in employment. It's in the report. Oh.

It's in the report. It's in the report. Oh, he's like picked out one sector that was down 270,000 jobs. Pretty much. Yeah. Yeah. Oh, that's bonus. Yeah.

Okay. Oh, wait a second. It's a sector. Wait, wait, wait, wait, 270,000. Okay, it's got to be pretty, that's a big one. It was negative 0.27%. Oh, percent. Percent. Percent. It's two months to month changes that are in the jobs reports. All right. One is negative. 27 percent. One is 1.69, 1.7 percent. There are two related industries that we've already kind of been talking about.

here. Restaurants? Yeah, one is restaurants. Yeah. Is the other one positive 1.7? The other one's positive 1.7. Professional and business services? No, it's the other, I can just tell you. Yeah, go ahead. Your torturing. So we're talking about accommodations in restaurants was negative. 0.27, right? That that's the element of the jobs report that the right of leisure hospitality. That's more about people traveling, going out to eat. The other one is Nix's co. Code 71, the one the related NICS code, the other industry, right? That is people going to games and movies, right? Wait a second. You know, this is over the top. Is it too late to revoke his invitation? I know. I'm thinking that. And he said he had another one, another

statistic. I don't know. I don't know either. Yeah, you stole my thunder a little bit here. I probably went a little too deep. But so, a little. All right, the point that I'm trying to make here. What's the point? Is that

accommodations, food service, this, restaurants, hotels, they're down. I think that reflects the lack of consumer confidence, concern over Delta.

That reflects Delta. Right. Okay. I'm getting there. Okay. Make 71, the other piece of this, right?

That would be things like, again, like concerts and ball games and movies and events, that's still going up. And what I think is striking in some of the data here is that you're still seeing a lot of reopening momentum taking place, right? So one of the things I'm looking at, I keep looking to see if New York City, for example, is going to change its plans about reopening Broadway next month, or actually this month now, in light of Delta. And they're not, right?

It seems like businesses, you know, local governments, everyone's kind of plowing forward But consumers themselves are spooked by Delta. And I think that's what's really driving some of these numbers. So I thought that was interesting. That's interesting. Okay, I'll give you that. I'll give you that the recreational activities continue to advance in higher jobs. But it doesn't square with the loss of jobs at restaurants and, you know, flat overall leisure hospitality, right?

I mean, so, you know, that suggests that businesses are pulling back, right? That the reopening isn't proceeding like it certainly was just a month or two ago because of Delta. Well, the momentum is slipping. It's decelerating, but the degree to which it's decelerating is really different, right? So I think in restaurants and in hotels, you're seeing a really sharp deceleration. I think demand has dropped really noticeably. I think for events, for shows, for games, et cetera, you're still seeing demand looking pretty healthy for that, relatively speaking.

Yeah. Maybe, I mean, I had thought, all right, maybe this is more a hope than a thought, that, you know, businesses would look through Delta. Yeah, right. Delta is definitely causing consumers to be more cautious, pull back a little bit, travel, a little bit less, go to restaurants less. But they're going to look through that and continue to hire because they know that they've got 10 million open job positions and that Delta is going to go away at some point and they're

going to be back right at trying to hire, excuse me, hire people. And if they kind of stop the train right now, they're going to have more difficulty a month or two or three from now starting to train back up again. That's what I had hoped for. I think that's still true. You do? Yeah, I agree. I don't think they're going to slow down their hiring.

I think the weakness in August. No, but they are, right? Aren't they? Didn't they do that in the month? Are you saying it's overstated because of measurement? It's overstated. It's just like, I mean, really, we've got to, you know, look through the ups and downs in August and September because there's going to be these idiosocratic events, Delta, next month's a hurricane. And it's going to look like businesses are pulling back on hiring, but they're not unless Delta prevents people from coming back into the labor force.

They have 10 million jobs, but they need people to fill these. And the Delta variant, if it causes schools to shut down, or if people are just too nervous to go back into the labor force, worried about getting a family member sick, then that's really going to be what drives the weakness in hiring. It's not a demand issue. It's a supply. Okay.

And maybe that is, Adam, just to be fair, I guess what you're suggesting is because these recreational activities, these industries that are, you know, like Broadway or ball games or concerts, that they're continuing to add to payrolls, which they did in the month of August, suggests that that is consistent with what I just said, that businesses are kind of looking through this. That's what you're suggesting. That's what I'm suggesting. You're looking on the upside here. You're looking on the price. I think, right, business are looking through it. I think the supply of leisure is still out there, right? And to Ryan's point that if businesses are continuing to look through and if things are still kind of proceeding, then yeah, there's not too much to worry about in the months ahead, I don't think.

If Delta doesn't sort of continue to intensify or get significantly worse. Okay. Hey, one other question I had before we talk a little bit more about Delta is this debate around the supply of labor, you know, I guess September was supposed to be a pretty big month. for people coming back to work. You know, schools reopened in-person learning. And that had been, at least in my view, probably the most significant constraint on people coming back to work. In the UI benefits, all kind of roll,

the emergency UI benefits, unemployment insurance benefits rolling off, the supplemental unemployment insurance benefit, that goes away in I think almost all states, maybe some states have kept it. They're able to if they want to. in the pandemic unemployment insurance for gig workers, contract workers, that comes off, that came off. Anything in the data that would suggest more labor supply coming into the economy because

of these things? Anything in the numbers? Not in August. Adam can talk, speak more about the regional, but all three of us dug through that report. And I couldn't find any evidence that, you know, states that ended UI benefits early in June and July. saw a big increase in either labor force or job growth. I think the UI is at the bottom of the list of reasons why people aren't re-entering the labor force. Yeah, if anything, those states went backwards in July, I think, because, I mean, one, many of those states are states where Delta

is surging, and that just matters a whole lot more than cutting off benefits. And I think also, right, there's, if we're not seeing much upward pressure on labor force participation or people reentering the labor force, what you're seeing in the other direction is that there are some people who were receiving benefits who are now not. So, you know, incomes are going down. And so, right, that's a net negative for the economy. And I think both of those effects, I think we're seeing sort of the reverse of what maybe some of the states had implemented those policies we're hoping. Yeah, I guess bottom line, the participation rate, the labor force participation rate held steady at 61.7%. So, and that's really not changed very much in recent months. And so it doesn't suggest that labor's coming back in

in a significant way yet. They're not leaving, but they're not coming in in a significant way. And I suppose it's just to point out, there's no going back, I don't think, to the 63% plus participation rate that existed pre-pendemic, because you've got a lot of boomers, baby boomers, people in their 50s, 60s and 70s that left the workforce during the pandemic. I don't, it doesn't feel like they're coming back, right? I mean, they're retired. I agree. And they're going to get up. Housing values are up. Exactly. Yeah, their nest egg is pretty large. They're, you know, out of here. Okay. I mean, we have in our forecast, participation, rising about a point from here over the next 12, 18 months, but there's no going back to where we

were. Yeah. Okay. Hey, let's just to kind of round things out on Delta, because that clearly is top of mind here. And I think my read of what you guys are saying is, okay, it's doing some damage, but, you know, it's not going to derail the recovery by any stretch. And hopefully the infections start to wind down a bit. Maybe hopefully the UK, their experience where Delta has petered out as a good case study for our future. then, you know, we kick back into gear and get some bigger job numbers down the road. So no big deal. Let me ask this. Under what circumstances does it become a big deal?

I mean, what would you be looking for to gauge whether you're either one, you know, not getting the severity of the virus? and more importantly, I guess, the fallout on the economy, the impact on the economy. So what kinds of things are you looking at to try to gauge that? Well, I'll give you mine, and then I'll let Adam, school closures. So I'm keeping a very close tab on the number of schools that, you know, are closing down. Because a lot of schools have, you know, protocols in place. I mean, just a few days before my son's elementary school opened up, they sent home a letter saying, all right, here's the criteria.

You know, if case counts get this, then it's mass. social distancing, no lunch. So they have all these procedures. And I think if schools start to shut down and go back virtual, then that's going to be a big hit to the labor supply. And that's going to delay when we start to see an increase in job growth. Because the domain is still going to be there. We're still going to have 10 million job openings. It's the labor supply that's going to take a long time to come back if we get this surgeon school closures. I think I got this right. But I heard that two school districts in Florida went back to online. line that they closed because of increasing infections. That can't be a good sign. No, I think it was

their first week. They didn't even get out of the first week. Right. And of course, kids under 12 haven't been vaccinated, so the high potential of getting sick. Yeah. Adam, what about you? Or what are you looking at? I'd agree that school closures are top of mind here. I mean, the other thing I think is just important to keep an eye on is the degree to which there are more breakthrough infections. And the thing that could be the game changer to me is the breakthrough infections keep rising or we start to see breakthrough hospitalizations or deaths, I mean, both because obviously that signals that our best defense here has been compromised, but also because this is more of a regional shock, I think, at the moment still. It's really, it's plowing through states with high unvaccinated rates. If it starts to really affect

states in the Northeast and the West Coast where vaccination rates are high, those are the states that have really been aggressive about closing back up again. And so that, I think, is a recipe for a broader potentially national kind of setback. I'll have to say, the impact, I think, has been broader than just those regions. I mean, it's affected people's thinking. I mean, you can see it in the consumer sentiment measures, the conference board survey of sentiment, which is very labor market oriented, which is the labor market's been very strong. that really tanked in August.

And that came after the University of Michigan survey, which is more, that's tied more to financial conditions like the stock market. And that tanked, that's tanked both. So this is clearly weighing on people's thinking. And it's certainly on mine. I mean, maybe I'm projecting. I mean, again, this is more a, this is more a thought, more a hope than the thought. but I thought when the vaccines came out a few months ago that done and dusted, as they would say

on Palatonn, this is over, you know, or at least not a big deal going forward. But the Delta has made it very clear that this thing is not over and can have serious impacts, and it's having an impact on me. Like I'm now much more reluctant. I just canceled my trip to Europe for early October, because, in part, they're not back to work either, so it's hard to have meetings. But the EU, the European Union just made it more difficult to travel to the EU for Americans. And I'm just nervous about traveling with so many cases out there and break through infections. You know, vaccines not

insulating people from the virus. So it feels like this is having a really dampening effect on the collective psyche and more of an impact than I had expected. And so, you know, if infections continue to rise here, and I agree with you, Adam, if you see more breakthrough infections, the vaccines just don't insulate people as well as we thought from this. This is going to do more damage. It's going to be more of a problem. We're already going to have to mark, we've already marked down our forecast, right?

I mean, as you pointed out, Brian, Q3 GDP is tracking 3.9%. And my guess is that's not the end of it. We're going to see some further markdowns. Because we incorporate only one piece of evidence for our data for August, and that's vehicle sales. So we have a lot more August data to come in. And this is when cases are surging. So I think, you know, Q3 GDP is shaping up to be much weaker.

Yeah. Well, I guess the other thing is you mentioned to me about the GDP tracking. You were at 3.9 percent, but a big chunk of that is just simply inventories, right? We had this huge inventory decline because producers couldn't produce enough to meet the demand. And now there's going to be less of an inventory drawdown or maybe a little bit of an inventory accumulation. I'm not sure which. And that swing means that GDP, a big chunk of the GDP growth is nothing but inventory. That's a great point.

So if you strip out inventories, GDP is tracking less than 1%. So, you know, excluding inventories, we're, you know, we're crawling now. Yeah. That's disconcerting. You know, we've got to get to the other side of this Delta variant pretty quickly here, I think. Otherwise, it's going to really be more of an issue. Okay, anything else on Delta? We should be considering thinking about wondering.

I mean, I did mention what's going on overseas. I think we can't discount the importance of what it means. I mean, did I mention the Chinese port shutting down? Did I mention that on the podcast? We've talked about it before. we have talked about today. Did we? Okay. It's an anecdote, but I think it's representative.

I mean, China shut down, I think they've reopened it more recently, but they did shut down a terminal in a major seaport because of COVID, because of Delta. And that, you know, obviously disrupted all the shipping from China into the rest of the world, including the U.S. for goods for the Christmas buying season. And a number of chip plants in Southeast Asia, which are key to the global supply chain, And they shut down because of just people are too sick to work. And that's now rippling through the global auto industry and increasing number of auto companies are shutting down, which means that's going to undermine sales as well. So the Delta is not only about what it is doing to the collective psyche here in the U.S. is not only about, you know, what it's doing in the parts of the country where vaccinations are late and infections are rising, but it's also what's going on globally.

you know, it's an issue. So yeah, this, this is, I think, more of a deal than, you know, I had hoped or thought it would be just a few weeks ago. Okay. All right. Let's move on. Another thing to worry about. Ge whiz, if it's not one thing, it's another. Come on. Please, you know, cut us a break. By the way, in the grand scheme, I know I'm pontificating a little bit here, but I just thought I'd point this out. when you think about it, we've been nailed, we meaning the collective we have been nailed by some pretty major shocks in recent decades. I mean, 9-11, that was a pretty massive shock that, you know, we're still paying for. You can see it on TV screens as we pull away from Afghanistan. I mean, the cost of that thing has been enormous. And then we had the financial shock, you know, the subprime mortgage crisis.

That was 2008, 2009. Don't forget about Katrina. I forgot, 2005. That was 2005. And by the way, we're going to come back to that in just a second. And then now this pandemic, which is enormously costly. So it's like, you know, cut us a break, please. And then they throw us the hurricane at us.

So, you know, real, you know, set of challenges for us economically. It's all my fault. It's your fault. Because I joined Moody's. Well, still, it was economy. at the time in 2005 in July. So all these, then we had the, we had Hurricane Katrina, and then we had the great financial crisis. All this has occurred since I became a business economist. That is interesting. That's, I'm sure there's causation there, not correlation.

There's definitely. Yeah, I'm sure, but I'm going to watch you. We're going to call it the sweet disaster index or something. Yeah. Hey, Adam, what did you join? Did you join before, Ryan? Were you, No, no, I joined. I actually joined right after Sandy. So we all benchmark our time by what natural disaster. Oh, that's funny. That's very funny. 2012. So, okay, Hurricane Ida. Give us the lowdown, Adam, on that. How big a deal is this going to be in terms of the economic data and statistics? All right. So, well, first of all, clearly a bigger deal. You think it's a bigger deal than I do, given. Oh, yes, exactly.

So whatever I say, just double it or whatever. My anecdotes say it's going to be bigger. That's all I'm saying. So from a macroeconomic perspective, it's not a huge deal. That generally is the case with hurricanes. I think there's one exception, and that's Katrina. And even Katrina, I don't think, was a national shock. That was a long-term regional shock.

And the way most of these others are, there's shocks that last. maybe a month or two, but generally you get rebuilding, you get reopening of businesses, and very little evidence of changes in migration patterns or anything along those lines in the longer term coming out of these disasters. So I don't think this is a huge deal in terms of the business cycle or where things are going. But having said that, it's a big deal for Louisiana, certainly, in the near term. I think that it's a real concern and really, I think, highlights some long-term risk in the Northeast around climate change in general. I think this is a really kind of harsh reminder of that.

And then there's potentially a little bit of an impact on gasoline prices and on the energy market, although it does seem like, unlike Harvey and Katrina, that there wasn't a lot of damage to the refineries into the pipelines themselves. I think they reopened pretty quickly. So that's, I think, one of the more common channels by which hurricanes can have a pretty significant widespread macroeconomic impact. And I don't think we're going to see that here. Okay. Okay. So just to summarize in my kind of simplistic way of thinking of things, there's three key channels

through which a storm like this can impact the economy. One is the obvious physical damage to property to physical public infrastructure, you know, that kind of thing. which in this case, that's where I was arguing it may end up being larger than our current estimate. Second is the economic disruption, lost power, which disrupts businesses, people can't get to work, which is obviously the case in the Northeast because of your kids not going to school, would be an example of that. and just lost economic activity. And then the third channel is through the energy markets, you know, because these storms

blow through the Gulf, a lot of energy production, a lot of refinery activity along the coast. That gets disrupted. That certainly happened in past storms. That causes oil prices, natural gas prices, and gasoline electricity prices all rise. And, of course, that sucks the energy out of, you know, the economy, because, you know, because if you have to pay more to fill your gas tank, you have less to spend on everything else. That's kind of the frame, right? I think that's right.

I think maybe number three there. We could think of it more broadly as supply chain disruptions, but I think the most frequent supply chain disruption is to energy markets. Yeah, good point because there was, what storm was it that kind of destroyed the port of New Orleans and caused all kinds of havoc with- Katrina. Was that Katrina? Yeah, Katrina.

And there was a lot of concern that we're going to see gas prices. rise like we did after Katrina. But what people forget, I think, is Katrina hit August 29th, 2005. A week later, Rita came through, almost a similar path. And that hit the Gulf Coast as well. So these oil rigs, you know, gasoline refineries were shut down for a longer period of time. They're already getting back up and running after Ida. So I don't think we're going to see, you know, a big surge in gas prices. Yeah. It feels like gas prices, I mean, at last I looked, gasoline prices already. come back in, didn't they? I don't think they were going to go back up. Gasoline futures rose yesterday. And they usually lead retail gasoline prices by one to two weeks. Is that related to Ida or something

else? It's related to Ida. Oh, it is. Okay. Okay. So bottom line, Ida, at most right now, you're estimating that the property damage plus the lost economic activity, 50 billion all in. That includes what happened to Louisiana. That's what's happened to the Northeast. That's your current estimate. That's the current estimate. Now, the one thing I'll say kind of in response to what you were saying earlier, a number, by the way, that you signed off on, not to point fingers here. No, no, no, no. I'm just kidding. I should say this out before you say anything more, you're like a SWAT team for natural disasters. Every time there is a natural disaster and they're meant, you know, as you pointed out, there has been many and going to be many more because of climate change.

you're on the case and you are trying to figure out what is the economic liability, the cost of all this. So you do that for hurricanes, you do that for flooding, you do that for wildfires, you know, earthquakes, you know, whatever it is. So you are a natural disaster guru. So you know what you're doing. That's why, you know, I don't question it. Well, I question it, but I sign off on it. Let's put it that way. That's right.

Yeah. Yeah, I'm like the grim reaper. If you see me, you know, something terrible. either has happened or is about to happen. So I think, generally, I think you're right. I'm thinking 50 million at the moment. Now, what's a little bit squishy with these numbers. 50 billion.

Right, sort of the top end. But to your point, I think it's very difficult to get a handle. So the Louisiana part of this, I think it was easier to get a handle on property damage and on lost output. It's a relatively small geography that was hit the hardest. It was clear the extent of the damage in some of the coastal areas of Louisiana. New Orleans actually wasn't hit that hard comparatively. The power outages are a big deal.

But the physical damage was much more pronounced if you go kind of a little bit south of New Orleans and into the coastal areas. In the Northeast, it's a little bit more complicated because you have such high population density, such high housing density, much higher house prices and property values in the area that was hit in the northeast than in Louisiana. So it means that there's a ton of value at risk. So if we're thinking kind of a worst case scenario here as this is passing through and we think that five to 10 percent of homes suffered significant damage or something like that, that is unbelievably costly. I think what we need to still get a handle on where we're just starting to see it now is how just, just

just how widespread the damage was. We know that there's a, again, this kind of broad geography where there was damage. What's less clear to me is if, you know, you're going kind of through, my suspicion is as you're going kind of county to county kind of through the New York, New Jersey, Pennsylvania area, there's some areas of utter devastation, but most areas kind of came through okay. And so because of that, I've kind of discounted the number a little bit and assume that, you know, we're looking maybe one to two percent of the housing stock, for example, that suffered really significant damage.

But if I'm underestimating there, that we'll definitely need to revise that number higher. Yeah. Okay. Fair enough. I think one of the things that made Katrina, and you may mention this already, I'll just repeat it,

that so devastating. And I think the cost in today's dollars of Katrina were closer to $200 billion, just for context. So we're talking to Ida, $50 billion, Sandy, maybe $100 billion. Katrina, $200 billion. deal, was that it dislocated a big chunk of the population, a large number of folks from New Orleans

actually left. They literally moved to Houston and other parts of the country. And you can see it in the data. I mean, you know, if you look at employment or population in New Orleans, you know, you can quickly see when Katrina hit. It was an inflection point. But we don't see that, do we in other cases? Are there any other cases? And I know you've done some work looking at the fires in California and the impact on, you know, people's living location decision where they're going to live. And you haven't seen any, just, you've not noticed any impact after controlling for all kinds of stuff. Is that, do I have that right? That's right. And interesting, that was, I should have gone with the other number. My other number was going to be the number

of people that left New Orleans in the aftermath of Katrina, but a little less obscure than Nix Code 71. So that was about 350,000 people that left, about one and three residents of New Orleans left between mid-2005 and mid-2006. And many of them never came back. It's still 100,000 residents in the hole from where it was beforehand. Adam's point about people not returning to New Orleans also gets back to you got hit by two hurricanes in roughly two weeks and the levees broke during Katrina and flooded New Orleans so people really couldn't go back. This time around, fortunately the levees held and we avoided a repeat of what happened after Katrina. Yeah. Okay. Hey, this is an interlude before we move on. I just want to give you play a little bit of the statistics game.

just because they'll break it up a little bit. And I don't know if I asked this before this before, but, you know, we purchased this firm, Moody's purchased this firm called 427. 427 is a Berkeley-based group that tracks climate-related weather events and rates. the risk of a climate event by property. So I could give them my address, and they could come back, they'll come back and say, okay, you're at high risk of flood, low risk of earthquakes. Your overall risk is this. Based on that data, and here's the question, and this goes to combining regional

with natural disasters, which metropolitan area in the country? country do you think is at most risk from climate events? Climate-related events. That would have been my guess. Everyone says Miami. But it's not. I feel I've heard this before, yeah. You have heard this before?

I can't remember what it is, though. So it'll be a good to me again, but I think I have one, but it's not Miami. No, it's in Florida. Is it in Florida? And the only reason I remember this is, because this is my hint to you, my wife is from this metropolitan, not that that's going to help you at all, but. And it's not where you have your vacation home. It's not Viro Beach, no.

Okay. Daytona Beach, Florida. Duton, isn't that interesting? Daytona Beach, Florida. That's the of all four, how many metropolitan areas are there in the country right now? About 400, 402. 402. Well, including divisions, but yeah, 402.

Over 402 areas, Daytona is the most at risk of natural events. Okay, here's another question for you, another quiz. what was the, what was the total amount of economic loss, property damage and lost economic activity in 2005? Katrina is a couple hundred billion. So what's this number? Is this the number you're getting from the BEA? This is from a reinsurer, Aon. Okay.

Aon, obviously they're very focused on this as an issue because they've got to pay out claims. So they've come up some pretty good estimates. Just, you know, roughly speaking, what do you think it's? $125 billion. You know, $200 billion was Katrina, so it has to be more than that, right? Oh, for all of $20. Since 2005? No, just 2005.

Just give you a sense of it. This is the record, record a year in terms of damage. 2005, included Katrina, Katrina was $200 billion. I'll put you out of your misery. $325 billion, $3605 billion. And that's in today's dollars. in 2020-1. Yeah.

Here's another statistic for you. Again, based on the Aeon, this is a reinsurer calculation, if you go back into the 80s, the on average, typical year, now obviously this goes up and down year by year, but on average, the damage from climatological and meteorological events was about 25 billion per annum, right? in the last few years, last five years, again, goes up and down all around, it's $125 billion in today's dollars. So that's a five-fold increase. GDP, over that same period, it's increased threefold. So that gives you a sense of thing. So to your point, Adam, I think we need to get prepared for more events, more costly events going forward, particularly if it gets into the

Northeast where there's a lot of densely, it's densely populated with a lot of highly valued property and economic activity. That's going to be a significant problem for us going forward. Okay. One thing to quickly point out, you know, Adam's throwing around big numbers, like 50 billion loss property. That doesn't get counted in GDP. What will be counted is the rebuilding. So, you know, you hear, well, we have GDP tracking 3.9 percent, but now we're losing 50 billion dollars, you know, from the storm, that's not going to impact GDP. Yeah, and that brings up another point, this whole kind of thinking that maybe natural disasters are a good thing because, you know, yeah, you have a bad day, but then you get all this money

and you start rebuilding and it generates all this economic activity. And that's a good thing. So maybe this is a good thing. I think that's called the broken window fallacy. Is that right? Do I have that right? Yeah. I think it's the other way around.

The broken window fallacy says, it was from that French economist that said, you know, if you go around breaking windows, you're not creating economic welfare. You're just creating economic activity. And that's why it's really important to make a distinction between economic activity. So, you know, rebuilding, you know, rebuilding homes, bridges, roads, and economic welfare. Those in Louisiana that were hurt by Hurricane Ida, their economic welfare is damaged. it will recoup, as we've seen after Katrina, Superstorm Sandy, all hurricanes, mostly those economies are made whole through insurance payouts or federal aid.

Yeah, that's the fallacy. It's fallacious thinking. Yes. That's not, is a broken window kind of argument, but there's the broken window fallacies that that's kind of dumb, you know, that's not right. It always comes up when we have natural disasters. Yeah. So what happens, just to make it clear to.

everybody. You know, you have all this damage. Then insurance money comes in, in many cases, government aid, federal, state, local. So you get all this money to rebuild. And that, that generates a lot of jobs and economic activity. And that does show up, as you pointed out, in GDP, in jobs, and incomes GDP. You see this kind of pop and growth. And people say, oh, well, that's a good thing, right? So what's the problem with the natural disaster? The way I think about that, though, the fallacy is kind of an income balance sheet argument. So that, you know, on an income side of the economy, you initially get hurt because you lose economic activity.

The property damage is not relevant here, but you lose the income. statement, but you lose the economic activity in the day, two, three, week two, three that everyone can't get to work and powers out. You get the money in, that generates economic activity and you get that pop to growth, but at the end of that, your income statement is kind of back to where it was, you know, down up and back to where it was. And in terms of your balance, but in terms of your balance sheet, that, you know, the assets that this economy has, I just suffered a huge loss, you know, from the physical damage. And, you know, maybe I can get back to where I was with a little bit of luck if I got a lot of insurance money coming in, if I got a lot of government

aid coming in. But there's definitely no guarantee that's going to happen, that you're going to get, be made whole by, you know, all the sources of support that might come in. And that you're, you're actually at the end of the day diminished by the natural disaster. Your economy has lower capital stock, you know, lower public infrastructure is diminished. Your private infrastructure is diminished. You have less productive capability going forward. It could actually affect your long-term growth rates if it's probably not because it's too small, but on the margin, that kind of impact.

That's kind of how you think about it. Yeah. And the one thing I would add is that, you know, this is why rebuilding is really important in the sense that you've got to do it the right way. And New Orleans did it the right way after Katrina. You're going to replace old bridges, old roads of new bridges, new roads. But they invested in the levies. And that really paid dividends for Hurricane Ida.

They didn't break like they did in Katrina. So if you rebuild correctly, invest in improving the capital stock, then the long-term economic welfare could be a little bit better than it was before the hurricane. Yeah. And I think one other kind of regularity I've noticed, this is just me eyeballing things. I'm curious whether it's consistent with what you've studied or your intuition. You know, if you go back 50, 75 years ago when you had a natural disaster, the amount of insurance money and government aid that came in fell well short of the actual physical damage that the economy suffered. But in recent years and decades, let's say over the last three, four decades, the amount of

insurance money and government aid that comes in is almost equal to the amount of physical damage. And actually, the government response is calibrated to account for the insurance. So if you're in an area where there's not a lot of insurance, New Orleans be a good case in point, you get more government aid. If you get a lot of insurance like Northeast would be a good case in point because of all the wealthy households and businesses, you get less government aid. But net net, the amount of funding that's coming in is roughly equal to the damage. Is that, in your mind's eye, is that consistent with what you've observed and think?

I think so. I think we've seen generally the federal government sparing little expense in some of these disasters and being very generous with aid towards areas that are hit. I think there have been times where I think it still has fallen short. I think, you know, if we look back to Hurricane Maria a few years ago, for example, in Puerto Rico, it still, it fell very short there. There are times, I think it depends a little bit on the disaster, on the geography of the disaster, too. To your point, Sandy, aid was not as great because there was wealthier population, higher levels of insurance, maybe the need wasn't as great. I think the total aid still fell a bit short.

So I think there are times, it depends a bit on the storm. I think by and large, I agree with you. Yeah. Okay. Well, one other point I wanted to make about this particular storm, Ida, in any storm we suffer here in the near term, is that the rebuilding might be more prolonged and painful. And that's because there's no people to build. And we have these very severe supply chain disruptions globally, and we can't get building material. You can't get everything from lumber to gypsum to concrete, to steel, to you name it.

You know, people are having trouble getting it. So this is particularly inopportune. And all those cars that are getting destroyed that flooded out, I mean, good luck. You know, it's going to be pretty difficult, you know, to find a new car at this point. So that's going to make this one a little bit more, Ida, the recovery from Ida, I think, longer and more painful. It's just given the circumstances that we're in right now. Okay.

Anything else we should be discussing here? I mean, Adam, you made a good point about you're going to be very busy going forward. It feels like that, you know, because of climate change, we're going to have more events, more serious events. I will say, and I don't know if I've talked to you about this, but we're looking at this now globally because we're doing climate change analysis all around the world. And so we're going to keep track of storms and try to do the kind of analysis you do here in the U.S. everywhere else in the world.

So that complicates things, you know, a lot more going on everywhere else. So, you know, obviously keep that in mind. But are there any other things you want to say about this issue that we didn't cover or we should be thinking about? You know, maybe one short-term thing I'll say is that the – Because of the pandemic and because people are working from home more broadly and even if people have gone back to the office, they've gotten more comfortable working from home. My tech issues today, notwithstanding, it's less disruptive to have to stay home and to be unable to commute than it might have been even five years ago. So that actually, the lost output piece of this. So I agree with you about rebuilding being more challenging right now.

But I think the lost output associated with these storms, which does make its way into GDP, there could be an opportunity to sort of overcome that a little bit more than in the past. The key kind of variable about whether that happens or not is whether there are power outages. So if power goes out, then you're out of lock and you can't work regardless. But if you can't get back and forth, whether it's a snowstorm or a hurricane, But your home and your power's on, you can't actually do your job if you are working in it, if you typically work in an office type of setting. And so that does make, that does mitigate the hit a little bit.

Yeah, no, that's a great point. It's a wonderful point. I mean, you know, post-pandemic or, you know, because of the pandemic, many more of us are now able to work from home and those, and to work more deftly at home. So that should help to mitigate some of the fallout here. That's a great point. Okay. Ryan, anything else on?

this subject? Again, I know you've done a lot of work here as well. Any other thoughts on the economics of natural disasters? Just that every natural disaster is different. You know, the consumer behavior around snowstorms is different than, you know, hurricanes, for example. So Adam, you know, he has to adjust his methodology of how he calculates the economic costs based on the type of natural disaster. Either hurricane, snowstorm, wildfire, I don't, I don't think there's a natural disaster that we haven't tried to estimate the economic cost for yet. Yeah, very good. Yeah, good point.

Yeah, you wrote a nice paper a few years ago that made that very clearly. It depends on the disaster. Okay. Well, I think we're going to call it a podcast. I do want to remind the listener to give us a rating. I haven't said that in a while, but we like to see those ratings and any feedback you have would be helpful. and also we'd like to hear from you about future ideas for podcasts.

So you can go to economy.com, go to inside economics, right at the top of economy.com, and vote on different subjects that you would like us to opine on and get guests for. And that would be very helpful as well. So thank you for that, for your participation. So with that, unless Ryan, Adam, anything else to add? good okay we're going to call this a podcast take care everybody