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.
Rebuild and Reshape
Nearly eight years ago, Hurricane Katrina devastated the Louisiana and Mississippi Gulf Coast. Most of the city of New Orleans was flooded in its wake, and the loss of life and property was tremendous. Having lived through these events, I can look back at the last eight years and feel the pride at what my city has accomplished since Katrina.
New Orleans has rebuilt and continues to reshape itself. As reported in the University of New Orleans Metropolitan Report, the New Orleans metropolitan statistical area population has steadily increased to 89 percent of pre-Katrina levels, to approximately 1.2 million residents (see the chart). In addition, the New Orleans unemployment rate in first quarter 2013 was at 6.4 percent, well below the national average, with major employment gains across several sectors of the region’s economy.
Louisiana and New Orleans region have taken advantage of post-Katrina opportunities, spurring entrepreneurs and business incubators such as Idea Village and becoming a mecca for talented young people moving to the region with jobs trending toward information services. A recent Forbes article ranked New Orleans as the number-one “brain magnet” in the United States in February 2011.
New Orleans is known for many things, including an affordable cost of living, low operating costs for businesses, state tax credits for leading industries, and the quality of life that young entrepreneurs seek. NOLA (as it is called by locals) also leads the state in tourism, hosting national events such as the 2013 Super Bowl, the 2013 Woman’s Final Four, and the annual traditions of Mardi Gras and Jazz Fest, which attract international crowds. Meanwhile, NOLA’s resurgence can be seen in rising commercial construction led by the robust biomedical industry, and urban renewal is driving residential development.
Louisiana and New Orleans have been very busy attaining accolades, and their growth and accomplishments contribute to the Southeast economy. Examples include:
- April 2013: Bloomberg ranked New Orleans/Metairie/Kenner among the top 12 boomtowns in the country.
- May 2013: Forbes ranked New Orleans the third-best city for the growth of information technology jobs (publishing, software, entertainment, data processing, and gaming).
- May 2013: The Louisiana Small Business Development Center (SBDC) Greater New Orleans Region was named the top SBDCs in the nation, earning the U.S. Small Business Administration’s SBDC Excellence and Innovation Award.
- May 2013: The Southern U. S. Trade Association and World Trade Center in New Orleans ranked Louisiana the number-five export state in the nation.
- May 2013: A survey in Chief Executive Magazine ranked Louisiana the 11th-best state for business.
While the memories and lessons of Hurricane Katrina remain prominent in our minds, we all can share in the pride as the region continues to build a promising future.
By Gail Psilos, a director of the Regional Economic Information Network in the Atlanta Fed’s New Orleans Branch
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As we witness another hurricane hit the U.S. mainland, we recount our own region's past disasters and lessons we have learned regarding the economic impact of these events. It was six years ago that Hurricane Katrina struck, and we have written about that experience in past posts. Data are still coming in, but it appears that while flooding associated with Hurricane Irene caused severe damage in several areas, destruction was not as bad as many had forecast. Looking back at previous disasters can help us understand what lies ahead in terms of the economic impact of Irene.
In the Wall Street Journal's Real Time Economics blog, Conor Dougherty writes that:
"Areas hit by some of the biggest natural disasters have in many cases recouped the economic losses in the form of federal aid and insurance payments, according to data from Moody's Analytics and the Insurance Information Institute. Here's a chart of past disasters, their cost and the eventual tally of aid and insurance payments.
"Hurricane Katrina, which hit in August 2005, has been by far the most costly natural disaster in recent history, resulting in $140 billion in damage and lost output. (That figure is in 2011 dollars and does not include the impact of higher energy prices after the storm.) But over the following months and years, businesses, residents and governments in the area collected a total $149.2 billion in aid and insurance payouts.
"There is no dollar figure that can be attached to the loss of life, emotional toll and massive loss of population that lingers six years later. But with Hurricane Irene barreling down on the Eastern seaboard, it's worth noting the damage of lost property and output is often made up in the end."
A recent Brookings Institution publication, Resilience and Opportunity Lessons from the U.S. Gulf Coast after Katrina and Rita, makes another point about economic recovery from natural disasters:
"Opportunity is a critical component of post-disaster recovery. It is defined by the extent to which a community uses a disaster as an occasion not simply to return to normal but also to achieve a new and better standard of living."
What is the Fed's role in helping the economy recover from natural disasters? The first response is through our role in the payments system. Federal Reserve officials helped to ensure the country's payments and financial systems get back online as quickly and efficiently as possible. The Atlanta Fed's response to Hurricane Katrina is one example.
Our superb economic education staff also used Hurricane Katrina to develop a financial and economic education tool in Katrina's Classroom: Financial Lessons from a Hurricane. The program is a four-chapter, DVD-based curriculum developed to help people prepare for disasters and recover from them.
Another question to be addressed in the wake of a natural disaster is what the role of monetary policy should be. Again, looking back to Katrina, the discussion was primarily about the potential impact on overall economic activity and inflation from reduced oil supply and transportation disruptions on the Mississippi River. At the Atlanta Fed, the view was that trying to mitigate a temporary supply shock by easing policy may have adverse implications for the economy down the road. Some economic research goes so far as to suggest policy should tighten in response of temporary supply disruptions from disasters. In 2007, the St. Louis Fed published a study, "Monetary Policy and Natural Disasters in a DSGE Model: How Should the Fed Have Responded to Hurricane Katrina?" Authors Benjamin D. Keen and Michael R. Pakko wrote:
"In the immediate aftermath of Hurricane Katrina, speculation arose that the Federal Reserve might respond by easing monetary policy. This paper uses a dynamic stochastic general equilibrium (DSGE) model to investigate the appropriate monetary policy response to a natural disaster. We show that … a nominal interest rate increase following a disaster mitigates both temporary inflation effects and output distortions that are attributable to nominal rigidities."
Similar to how hurricane forecasters have improved their models by taking advantage of past experience and applying lessons learned, economic forecasters are also trying to improve their understanding of the economic effects of disasters and the optimal policy responses.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
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Thoughts on Hurricane Katrina, five years later
An anniversary is a time of reflection and a time of planning for the future. We marked the fifth anniversary of Hurricane Katrina a few days ago. My first thoughts of reflection go back to the morning when the storm came in. I had planned to get to work early, knowing I would spend the day doing various economic assessments of what damage the hurricane had wrought. But I first had to deal with a disaster of my own. My 9-year-old daughter had left the faucet running into a plugged sink in our upstairs bathroom. Our entire downstairs was flooded. As we did what we could to begin the cleanup, I watched the radar image of Katrina come on land from my wet, but safe, home outside Atlanta. What I would see that day would put our little problem in perspective.
By the time I got into work Katrina was well ashore. It seemed pretty clear that the Mississippi coast had borne the brunt of the storm and New Orleans had been spared a direct hit. As we began to develop briefing materials for the Bank's senior officers, news reports began to roll in describing the devastation in Biloxi, Gulfport, and Pass Christian. We also saw pictures of the damage in New Orleans—hotel windows missing and the torn fabric atop the Superdome. I wrote in one of my first communications of the day that "In New Orleans, structural damage appears severe in places but not catastrophic."
It wasn't until later that day that we began to hear that there was flooding in the Big Easy. From Atlanta, we figured it was the effects of the storm surge through the wetlands bordering St. Bernard Parish, and maybe levees were overtopped. All hurricanes bring storm surge and some flooding, so we didn't think too much of it, to be honest. We were focused on getting damage assessments from the Gulf's energy infrastructure, which we would find out were severe.
Then I read a newswire report that several levees in New Orleans had given way. I had watched a TV special about how New Orleans was vulnerable to hurricane-induced levee breaches, but the storms they described hit New Orleans head on; Katrina had missed to the east. It still didn't register. Then we saw the first photos. The entire city was flooding. It was clear we were dealing with a disaster we were told could happen, but none of us believed it would ever really happen. But it was happening, and like all Americans we felt helpless.
That was five years ago, but we can all remember watching the tragedy unfold like it was yesterday. I remember worrying about my colleagues in our New Orleans office, about the friends I had in Mississippi, and how we could ever be expected to go about our work in trying to measure the impact on the economy in what was clearly an immeasurable human catastrophe.
The response of the Federal Reserve Bank of Atlanta to Hurricane Katrina is documented in our 2005 Annual Report and in several articles and presentations made in the days and months following the event. In the Research Department, we became unwilling experts in disaster economics, never forgetting the heartbreak and human toll of Katrina. The Brookings Institute performed similar exercises, and their latest work is an outstanding look back, and also a look ahead.
I'm fortunate that my work takes me to New Orleans several times a year. I've been able to witness the city's slow but steady recovery and have met some of this country's best and strongest citizens. I've viewed the restoration along the Mississippi coast with awe.
When the most dire predictions were being made regarding the impact of the oil spill, I thought back to Katrina and how these people bounced back with pride and dignity.
As the people who survived and rebuilt five years ago reflect on and plan for the future, I had one recurring thought—not one measured by any economic time series or accounted for in any econometric model. No matter what my friends along the Gulf Coast and New Orleans may face, I wouldn't bet against them. Ever.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
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The region's other disaster
With most of the attention directed at the Gulf oil spill, the Tennessee floods have perhaps been little-noticed outside the Volunteer State. But the events of May 1–2 were significant to say the least. In terms of comparison, the U.S. Geological Survey wrote that the flows on major Tennessee rivers
" '[W]ere much greater than anticipated based on previous experience and exceeded those observed in both the 1975 and 1927 floods,' according to Rodney Knight, surface-water specialist with the USGS Tennessee Water Science Center."
The Atlanta area experienced a similar flooding event in September 2009. A big difference was that the flood in Georgia did not hit the city's major business districts. Stretches of I-20, the major east-west highway, were submerged for a day or so, but most damage to the infrastructure was temporary. Flooding to the west of the city was devastating, and many homes and businesses were destroyed. Some roads were washed out, but repairs were quickly made, and for the most part the Atlanta region recovered quickly.
Nashville's experience was different. In addition to destroying homes and businesses, the floods hit the city's central business district, and highways were shut down for several days. The rail line between Nashville and Memphis was also damaged, but freight has been rerouted. So we do not expect that the floods in Tennessee, like those in Atlanta last year, will have a significant national economic impact.
State and local government response has been positively recognized by national agency officials such as Homeland Security Secretary Janet Napolitano, who visited Nashville on Saturday, May 8, and expressed how impressed she was by the way the state and local governments are handling the disaster. During a visit on Monday, May 10, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan said that the federal government is standing behind local leadership's actions toward recovery.
The Tennesseean wrote last Sunday about the flood. Its report noted that government and aid agencies said they don't know how many damaged homes and businesses have flood insurance, but it is clear that many do not. "That could lead to more foreclosures in a housing market already struggling," according to David Penn, an economist with Middle Tennessee State University.
Along those lines, HUD's Donovan announced a 90-day moratorium on foreclosures by Federal Housing Administration lenders, allowing some temporary relief from past-due mortgages of flood victims. HUD will partner with housing agencies in Nashville and surrounding counties. Funds including $29 million in community development block grants will be redirected to flood recovery efforts, and FHA loans will be available to help citizens rebuild.
The Tennesseean report also quoted Matt Murray, an economist at the University of Tennessee in Knoxville, who said tourism dollars lost to the city will never be recovered, although he didn't think the flooding would do long-term damage to the industry.
The Atlanta Fed's Nashville Branch sits on higher ground and was far enough away from the Cumberland River that it did not sustain damage. In addition to reporting on Tennessee's recovery from the flood, the branch is playing a key role in meeting the region's cash delivery needs and disposing of currency contaminated by flood water from submerged ATMs and several bank vaults. The city will rebound, but it will take time to fully estimate the economic damage caused by the May flood.
Loss of property has been devastating to say the least, but loss of life has been worse. Ten people lost their lives in the Atlanta floods; the toll in Tennessee is nearly three times as great.
By Michael Chriszt, assistant vice president in the Atlanta Fed's research department, Lee Jones, regional executive at the Atlanta Fed's Nashville Branch, and Amy Pitts, REIN executive at the Nashville Branch
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- Southeast Manufacturing Dips in May
- Assessing the Impact of Oil Price Declines on Louisiana's Economy
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