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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.


SouthPoint

06/21/2011


Studying the impact of tornadoes

On April 29, we wrote this about the devastation wrought by the late April tornadoes:

"Historically, the economic pattern of disasters sees initial losses as affected areas experience a slowdown in activity. The duration of the slowdown is tied to the extent of damage in economically important areas, and the duration of loss of services such as power and water. Recovery is driven largely by two factors—physical rebuilding of damaged and destroyed infrastructure and replacement of capital and household goods. As insurance checks are distributed and government aid is delivered, the economic recovery begins to take hold. Rebuilding infrastructure and replacement of capital and goods can stretch out several years, depending on the extent of the damage."


A recent study titled Preliminary Economic and Fiscal Impacts of the April 27, 2011 Tornadoes on Alabama by our friends Samuel Addy and Ahmad Ijaz at the University of Alabama's Center for Business and Economic Research reached a similar conclusion. Here are their overall conclusions:

"For the Alabama economy, the April 27 tornadoes will initially reduce GDP by $835 million to $1.3 billion or 0.5–0.7 percent, employment by about 5,600–13,200 jobs or 0.2–0.5 percent, state tax collections by $19.1–44.5 million or 0.2–0.5 percent, and local sales tax receipts by $4.4–10.2 million in 2011. Recovery activities (cleanup, assistance, and rebuilding) should pump $2.6 billion into the state economy in 2011 and $1.6–3.2 billion in 2012; state spending of about $80–100 million for cleanup in 2011 is expected. The federal government and insurance claims will fund most of the recovery. Cleanup and assistance should be completed in 2011, but rebuilding will continue into 2012."


The authors also note that the study does not take into account the "other very important quality of life factors such as lives lost, displacement, mental and physical health issues, and disruption to the lives of people who were not direct victims."

Driving home from Huntsville a couple of weeks ago, I went through the town of Rainsville, Ala. I was unaware of the tornado that ripped through that small town, but I'll never forget the aftermath. This past weekend I was in Ringgold, Ga., and saw similar damage. But the people of these towns are clearly resilient—cleanup was evident, and even some rebuilding was under way.

Photo of Michael ChrisztBy Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

June 21, 2011 in Alabama, Disaster recovery | Permalink

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05/10/2011


Lessons from past weather disasters

We've been thinking more about the impact of the April 27 tornado outbreak and how the recovery is taking shape.

We are drawn to comparisons to Hurricane Katrina—not the impact on New Orleans, because that event was singular as a result of the flooding, but the impact on the Mississippi Coast, where damage was catastrophic and, apart from the storm surge, the area experienced no flooding.

A report prepared in August 2008 by the Gulf Coast Business Council, titled Mississippi Gulf Coast 3.0 Three Years after Hurricane Katrina, reported that:

"Construction and rebuilding not only stabilized the economy on the Mississippi Coast in the months after the storm, but also propelled [sales tax] revenues to new highs; in fact, the entire State of Mississippi saw a boom."

Marianne Hill, senior economist with the Mississippi Institutions of Higher Learning (IHL), wrote in December 2005 issue of Mississippi Economic Review and Outlook:

"As 2005 draws to a close, recovery efforts are focused on debris removal and clean-up, provision of assistance and services to Coast residents, resolution of insurance claims, and reconstruction planning. Within a few months, reconstruction efforts will be able to move ahead at full steam. Already most homeowners and businesses are back in the area, settling insurance claims, repairing damage and restarting operations."

In the June 2006 report, she wrote:

"The destruction caused by Hurricane Katrina last summer set back economic activity in the state, but the tremendous inflows of assistance since the disaster have boosted sales, employment and tax revenues. Although the task of rebuilding after such devastation is frustratingly slow by its very nature, the recovery effort is moving forward. Economic indicators show clearly that progress is being made."

Like the Mississippi coast in 2005, assistance is arriving to hard-hit areas of Alabama. I was struck by weekend reports of the help that was flowing into Tuscaloosa. A story on Tuscaloosanews.com reported that up to 10,000 people had come to the city to help.

"LaDonnah Roberts, coordinator for Tuscaloosa Area Volunteer Resources, said that number doesn't take into account the hundreds more who are working with organizations like Samaritan's Purse and churches that were not required to register this weekend.

" ‘We estimate that since the storm, we've probably seen 10,000 total volunteers come into the city,' Roberts said."

Last week, we wrote about the small Alabama town of Hackleburg, which was devastated on April 27. Looking at how rural areas recover from natural disasters is an important part of the story. Bob Neal, emergency and fire safety coordinator from Mississippi IHL's finance and administration arm, recognized the difference in delivery of assistance between rural and non-rural areas. He wrote in the December 2005 issue of Mississippi Economic Review and Outlook (cited above) that:

"Rural places receive disaster aid more slowly than urban places because they are more thinly populated and, generally, more difficult to access after a disaster. There is little that can be done to alleviate or mitigate these two fundamental factors affecting disaster aid delivery. People who live in rural places must simply accept the fact that disaster aid will reach them more slowly than in urban places. Rural places also receive less disaster aid than their urban cousins. Providing disaster assistance in rural places is more expensive. Fixed costs of providing aid are spread over fewer people and transportation costs are greater."

We also wanted to share a paper I came across researching the topic. It's an (as far as we can tell) unpublished thesis written in 2009 by a doctoral candidate from Texas Tech University, Maribel Martinez. In her paper, titled "Economic analysis of the tornado impact upon two communities," she notes that:

"Research on the short-term and long-term economic effects after a tornadic event is sparse, especially for small to mid-size communities. These communities often lack the political and economic influence of larger cities when it comes to preparing and recovering from an event. Although large metropolitans may have more population at risk, large urban areas often have the resources, training, and funds to deal with hazards and disasters."

Martinez looks at the impact of tornados on two smaller communities—Clovis, N.M., and Tulia, Texas, that were hit on March 23, 2007, and April 21, 2007, respectively. Her conclusions are:

"The people in the community came together along with many others from surrounding communities to help in the cleanup process. Debris was cleared within the week....
Those businesses that sustained major damage not only to the structure but inventory as well, took longer to recover, between two to nine months....

"Research showed that when businesses are hit by a tornado, some experienced demand surge. This included auto repair shops and service firms such as insurance agents. Others continued to operate or recovered quickly by changing locations or operating out of their homes. However, establishments in sectors such as manufacturing/dairy/retail sustained longer lasting periods of business interruption."

We'll continue to monitor the recovery in both densely populated and rural parts of the Southeast in future posts.

Photo of Michael ChrisztBy Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

May 10, 2011 in Disaster recovery, Katrina | Permalink

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04/29/2011


Tornado outbreak, heartbreak

We are all reeling here in the Southeast from Wednesday's tornado outbreak. If you haven't seen just how many touchdowns we had, take a look at this real-time map on MSNBC's website.

Alabama was hardest hit. Lesley McClure, our regional executive in the Birmingham office, penned a note to members of the branch's board of directors outlining the Fed's response to the tragedy:

"First let me say that I hope each of you, along with your families and friends, are safe. I know everyone is consumed with coping with the aftermath of the disaster, but I wanted to reach out to you to let you know what the Fed is doing now and what we can do to assist in the future.

"The Federal Reserve's response to a disaster is twofold—short term and long term. Our short-term response does not provide relief for critical needs such as housing, food, etc. However, our ability to put cash on the ground is key as power outages create situations where retailers may only be able to accept cash due to the inability to conduct electronic payments. Psychologically, access to cash is very important. The Atlanta office extended its cash ordering hours on Thursday and did receive several late cash orders. They are committed to being available for weekend payouts if needed.

"For longer-term needs, we have staff in our Community and Economic Development group with experience in supporting the rebuilding of homes and the challenges associated with financing, under-insurance, etc. They can advise local governments on what to expect regarding housing development and infrastructure in the wake of disaster. They can work with non-profits to educate them on how to establish information centers for families seeking assistance with rebuilding."

Although much less important at this stage, we are monitoring the impact from an economic point of view. Economic disruptions will be significant in the short term as power and water services remain interrupted in several areas.

Damage from the region's tornado outbreak April 27 will run into the hundreds of millions of dollars and could cross the $1 billion mark, according to first-take estimates from the insurance industry. That said, it will be weeks before anyone can deliver reliable estimates. Part of the reason for uncertain estimates stems from the fact that many areas have experienced extended power outages, which could mean that firms without physical damage may be able to collect on policies that cover business interruptions.

Historically, the economic pattern of disasters sees initial losses as affected areas experience a slowdown in activity. The duration of the slowdown is tied to the extent of damage in economically important areas, and the duration of loss of services such as power and water. Recovery is driven largely by two factors—physical rebuilding of damaged and destroyed infrastructure and replacement of capital and household goods. As insurance checks are distributed and government aid is delivered, the economic recovery begins to take hold. Rebuilding infrastructure and replacement of capital and goods can stretch out several years, depending on the extent of the damage.

As our thoughts and support go out to our friends and neighbors that are coping with these events, we'll continue to reach out to affected communities and monitor the economic impact of the April 27 tornadoes.


Photo of Michael ChrisztBy Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

April 29, 2011 in Alabama, Disaster recovery | Permalink

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