Can the Texas Economy fight Mother Nature?

Katrina was the most costly natural disaster in U.S. history - not only for the southern gulf coast area, but for Texas as well.

I called Steve Murdock, our Texas State Demographer to ask what he believes will happen in Texas demographically as a result of Katrina.

He made it perfectly clear that the biggest problem is that we still don't know how many of the approximately 250,000 +/- people who came to Texas after hurricane Katrina will remain in Texas. We just don't know....we will have to wait and see.

Murdock said, "There is so much uncertainty. We really have no idea how many are here, we don't know their characteristics, and we don't know what they have in mind. We do not have sufficient data to see the full dimension of effect."

What do we know? People tried to get help from FEMA in centers across the state....they went to register and were told that someone would get back to them by mail or phone, or asked that they come back the next day - and of course they didn't. How could you expect traumatized evacuees to respond to a request of "We are so busy - come back tomorrow?" The system failed.

In the grand scope of the world, Mother Nature spares no one. We have the hurricanes in the Atlantic and Pacific. And, there are the forest fires and mudslides in and around LA, the earthquakes like the one we just saw in Asia that have a casualty rate of 2k this morning, and the devastating tsunami in the pacific. Take a look at Tiki Island - 105 years ago last month a huge storm killed 5k people there - and it was rebuilt but remains as vulnerable today as it was then. But the point is that people did return, and people do rebuild… because it is our nature to be hopeful and to migrate back to our roots.

We can look at the devastation of Galveston early in the 20th century. The city was rebuilt, but was never the same again.

Let’s look at some suppositions:

1) Louisiana homeowners/landowners will go back - the feds will offer low cost loans/grants to rebuild in that location. People might be able to secure loans as low as 2%, so they won't have to start off from scratch.
2) There will be a lot of jobs in Louisiana to keep construction crews busy for some time - the levies alone will need a lot of work. Of course – last week you had the news release that the City of New Orleans cut workers this month because of loss of revenue. But when things clam down – N.O. will most likely spiral above average in job gains. And nationally? It seems that Fed is more concerned about rising inflation than weakening growth.
3) Customs and heritage - there is no place like New Orleans - and people will return to their roots.
4) The poorest of the poor - their situation is different. There are better temporary public assistance (Medicaid, TANF) programs in Louisiana that in Texas - we are stricter with what we offer.

And now, lets look at the facts of the Hurricanes long term/short term effects according to Diane Swonk, chief economist of Mesirow Financial:

- Disruptions to employment, incomes, business, and higher energy prices are expected to shave at least 0.5% off second half of the year growth. The persistence of high natural gas prices is worrisome. "Heating bills could surge as much as 70% in the Midwest, which will put a damper on holiday spending in December," said Swonk.
- Growth will reaccelerate as rebuilding gets underway in 2006. "On net growth is expected to move back into the 4% range ... those gains, however, are expected to mask the squeeze on spending caused by persistently high energy prices," added Swonk.
- Greenspan may want to pause in September, however, his pending retirement and waning influence with other members of the FOMC suggests that he may not get his wishes this time around. Look for the Fed to raise rates at their September and November meetings. Hurricane-related losses should allow the Fed to hold the fed funds rate at 4% at its December meeting. Moves, thereafter, will be contingent on who replaces Greenspan.
- Costs associated with the storm are expected to force the BushAdministration to scrap its agenda for the fall session of Congress. "Proposed cuts in Medicaid and income support programs look particularly ill-timed given those worst affected by the crisis," commented Swonk.

"There will obviously be many winners and losers, however, the real challenge is trying to stop unscrupulous individuals and businesses who try to game the system for their own gains. And, the U.S. economy may not be able to fight Mother Nature, but it can make surviving her wrath a lot easier than anywhere else," said Swonk.

One thing for sure - Murdock told me that Texas grows at a rate of about 385,000 per year....another 250,000 could accentuate the issues we already face.