The Impact of Harvey and Irma on American Manufacturing

It’s been a big season for natural disasters lately. Hurricane Harvey devastated the coast of Texas August 25-29, and Irma pounded Florida starting September 10 after nailing Puerto Rico on September 7.

Both storms were enormous. Harvey set a North American record for rainfall, with almost 52 inches of rain dumped into Cedar Bayou, Texas. Texas Governor Greg Abbott anticipates that Harvey recovery could cost up to $180 billion. Irma was the most powerful hurricane in recorded Atlantic Ocean history, and was wide enough to impact the entire width of the Florida peninsula.

How are these storms impacting manufacturing? A month later, many perspectives are in.

The potential effects include actual manufacturing in the affected areas; transportation issues; supply chain disruptions; and the impact of increased demand as recovery and repairs progress.

Plastics Manufacturing Impacted by Storms

According to CNBC on September 9, “The U.S. Gulf Coast is home to about 90 percent of the nation’s capacity to turn out base plastics, the building blocks for a wide range of consumer and industrial goods. Petrochemical plants that make the products and the rail companies that ship them are still restoring service after Harvey brought devastating flooding to southeast Texas.”

Plants in coastal Texas supply ethylene and propylene, crucial source materials for a wide range of plastics, as well as specialty chemicals. These plants took a big hit, threatening to create supply shortages and raise prices for U.S. manufacturers. Even as plants resumed activities, transportation out of the area was paralyzed.

Enormous Rebuilding of Housing and Commercial Buildings in Texas

As the fourth largest city by population in the US, the widespread damage in Houston and surrounding areas will impact U.S. housing stock as a whole. According to NPR, the White House said 100,000 homes were impacted by the storm. According to the MAPI (Manufacturers Alliance for Productivity and Innovation) Foundation, “once the rebuilding of the housing stock begins in earnest it could be a powerful growth stimulant for U.S. manufacturing.”

Automotive Industry Impacted by Hurricane Harvey

All those homeowners had cars, too. According to the Atlanta Business Chronicle, an “estimated 300,000-500,000 vehicles were destroyed by Hurricane Harvey. Analysts from Evercore ISI are estimating that the losses will be 1 in 7 Houston area cars. Combining the number of private and business-related vehicles destroyed, Black Book believes that figure to be more like one million.”

Drug Manufacturing Interrupted in Puerto Rico

According to Forbes.com, “twelve of the top 20 global pharmaceutical and biotechnology companies have manufacturing facilities on the island, according to the Puerto Rico Industrial Development Company. As a result, Puerto Rico manufactures seven of the top 10 drugs sold globally.” Many of these drugs are life-saving and life-sustaining. Puerto Rico also plays in important role in manufacturing medical devices. Three weeks after the storm, only 16% of electricity service had been restored, so while companies are slowly coming back online, they’re working well short of capacity.

Hurricane Impact on GDP

According to the MAPI Foundation, “manufacturing executives need to readjust their business plans to account for a significant disruption. Analysts who are bravely offering early estimates are projecting that Harvey will shave between 0.1 and 0.5 percentage points off of third quarter 2017 U.S. GDP growth, with a modest boost to growth in the fourth quarter of 2017 and early 2018. The general pattern of a moderate hit to growth followed by a modest rebound is consistent with historical experience.”

The Federal Reserve asserts that the ultimate impact on the GDP is negligible, as revealed in a statement by the agency: “Hurricanes Harvey, Irma and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.”

The Bottom Line for Mid-Sized Manufacturing

While these two massive hurricanes may cause some ripples in the supply chain and transportation, in the big picture most industries should recover relatively quickly, and categories like housing, construction and automotive will probably experience some expansion as the recovery unfolds.

In the near term, however, some manufacturing is off-line or experiencing disruptions due to transportation and supply chain issues.

If you or your suppliers are experiencing negative impact on production due to the hurricanes, get in touch with us as Laser 1. We have the capacity to bring in some extra clients while our colleagues in Florida and Texas are getting back on their feet.