Han Dieperink: Trump's chances are increasing thanks to Helene and Milton
This column was originally written in Dutch. This is an English translation.
By Han Dieperink, written in a personal capacity
Extreme weather can have a major influence on all kinds of macroeconomic developments: on the labor market, on production, on consumption, on investments, on the housing market. And also on the American presidential elections.
Extreme weather increasingly causes energy and food prices to rise, making it less easy for central banks to monitor the underlying economy. After all, in the short term there is a need for lower interest rates to stimulate the economy, but in the long term hurricanes actually cause more inflation.
The recent hurricanes Helene and Milton are also causing disruptions in the labor market. Earlier in the season, hurricane Beryl had a similar effect, causing job growth reported in the first week of August to be disappointing. This was a direct reason for a correction of about 10% on the stock market. However, the impact of extreme weather on the US presidential elections could be even greater.
Greater economic impact through distribution
In less than two weeks, five hurricanes have formed in the Atlantic Ocean, roughly equal to the number of hurricanes in an entire season. At the same time, it was remarkably quiet in the peak month of September, even though the season started so early with hurricane Beryl on July 2. For the first time since records have been reported (1920), there was a Category 5 hurricane so early in the season. Weeks earlier, a severe hurricane season had already been announced due to the higher sea temperature.
The biggest difference with a normal hurricane season is that the major hurricanes are more spread out and therefore the economic impact is greater. This appears to be caused by smaller hurricanes, aided by seawater temperatures, gaining strength over a short period of time, reducing preparation time. For example, the wind speed in hurricane Milton increased by 90 kilometers per hour in 24 hours, a phenomenon that rarely occurs.
A positive impact on the GDP in the long term
A Category 5 hurricane is likely to have a 0.14% negative impact on the United States' GDP. For the record, it is not about the total damage, but about the negative impact on economic growth. In the long term, one-off natural disasters theoretically even have a positive effect on economic growth, because the destruction itself is not part of the GDP, but the recovery work is. According to estimates, hurricane Helene will reduce job growth by approximately 45,000 jobs. Milton comes on top of that.
The windfall in the jobs figure for September (258,000) could be partly caused by the relatively mild month of September and be canceled out in the October figure. In the long term, hurricane recovery efforts will create approximately 250,000 jobs, generating $ 17 billion in additional wages and adding a total of $ 30 billion to GDP.
Location matters
Now the impact of a hurricane differs per region. Because many areas are becoming more densely built up, the damage from hurricanes is increasing every year. As a result, a growing part of this damage can no longer be insured, or can only be insured at increasingly higher premiums.
In the Netherlands, the chance of a hurricane occurring is not (yet) great, simply because the sea water is too cold here. At the same time, a large part of the Netherlands is below sea level and there is a good chance that insurance premiums will rise faster in those areas, if only because of the greater amounts of precipitation. Higher insurance premiums depress the value of real estate and this can pose an obstacle to the development of new projects.
Incidental impact on inflation
Furthermore, natural disasters mainly affect the tourism sector, retail and the catering industry, and these are relatively large in Florida, although people are used to that. In addition to houses, cars were damaged. Once flooded, they are often a total loss, with the added risk of fire in electric cars. Expect higher car insurance rates. These are already rising because it is becoming increasingly expensive to repair modern cars.
The hurricane season also regularly brings oil production and processing to a standstill in the Gulf of Mexico. The complicating factor this time is that there are strikes in the ports on the American west coast. Together, there are sufficient ingredients that could ensure that inflation figures will be disappointing in the coming months. Yet this is both a seasonal and a temporary effect. Previous major hurricanes had no lasting impact on inflation rates.
Impact on elections
The hurricane season coincides with the US presidential elections. Earlier this year, Joe Biden was widely criticized because the government did not provide enough support to Beryl's victims. Donald Trump also uses this in the election campaign. According to Trump, the FEMA (Federal Emergency Management Agency) does not have enough money because it is spent on migrants and foreign wars. Biden states that this is not true, but the damage has already been done in the communication. This could play a role, especially in swing states such as Georgia and North Carolina.
Past history shows that the sitting president is often the head of the crowd. Bush lost the election after hurricane Katrina (and the war in Iraq). Barack Obama later won the election, partly due to his response to hurricane Sandy, a week before the election. The campaign was halted and Obama visited the affected areas. While his opponent, Mitt Romney, was previously in favor of reducing the budget for the FEMA. Research showed that as many as 15% of voters considered Obama's response to hurricane Sandy in their final choice. Trump may soon win the election thanks to Helene and Milton.