Industrial Production and Hurricane Harvey

By at 18 September, 2017, 2:05 pm

by Raymond J. Keating

Industrial production, in particular, manufacturing production, has been an ongoing concern. Prior to August, manufacturing output was flat in July, and had been on an up-and-down roller coaster ride since February.

And then Texas and Florida – the second and third largest states in the nation – were hit by Hurricanes Harvey and Irma, respectively. The latest industrial production report from the Federal Reserve released on September 15 provides an idea of the economic damage wrought by Harvey, accompanying the devastating human costs.

Industrial production – i.e., the real output of the manufacturing, mining, and electric and gas utilities industries – in August was down by 0.9 percent, with manufacturing off by 0.3 percent, mining down by 0.8 percent, and utilities output falling by 5.5 percent.

As the Fed reported: “Hurricane Harvey, which hit the Gulf Coast of Texas in late August, is estimated to have reduced the rate of change in total output by roughly 3/4 percentage point. The index for manufacturing decreased 0.3 percent; storm-related effects appear to have reduced the rate of change in factory output in August about 3/4 percentage point… The output of mining fell 0.8 percent in August, as Hurricane Harvey temporarily curtailed drilling, servicing, and extraction activity for oil and natural gas. The output of utilities dropped 5.5 percent, as unseasonably mild temperatures, particularly on the East Coast, reduced the demand for air conditioning.”

Sorting all of this out is far from a precise science. But what we seem to see from this data and the Fed’s accompanying explanation is that growth in overall industrial production probably would have been positive in August absent Harvey, restrained mainly due to good weather reducing utility output. As for manufacturing production, it would have expanded, perhaps by 0.4 percent to 0.5 percent, absent Harvey.

The impact of Harvey is, unsurprisingly, rather substantial. And September promises to be negatively affected by Irma.

The questions looking ahead include working to bounce back from these devastating storms, along with the fact that manufacturing output still has not recovered to its pre-Great Recession levels.

The situation speaks to the need for federal policy changes that incentive entrepreneurship and investment, namely, substantive and permanent tax and regulatory relief and reform. And that would include substantially reducing personal and corporate income tax rates across the board, dramatically reducing the capital gains tax, and making expensing an option for all businesses.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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