How is the Economy Weathering the Storm?     

It is not surprising that the devastation in the wake of Hurricane Irma and Hurricane Harvey is significant. Not only did the consecutive hurricanes demolish everything in their paths, they could also have a significant impact on the GDP as a whole. Goldman Sachs “sees GDP expanding by 2% during the period, down 0.8 percentage points from its previous forecast” after the destruction took place in Texas, Florida and Louisiana. Hurricane Irma has racked up more expenses and impacted more people than Hurricane Harvey, which hit just a month prior, and Hurricane Katrina back in 2014. Even if the hurricanes weakened before it hit land and resulted in minimal to no damage, the preparation, evacuation and complete halt to a segment of the economy is significant and that does not include the damage in the aftermath. As for direct impacts to the GDP, accrued loss to oil and energy will have an impact on the GDP growth. Not only do the hurricanes ruin working infrastructure, but it displaces the people responsible for consumption and production. Depending on how quickly everything can be reconstructed, that displacement could last a while. Another aspect of the measurement of damage is that the real accumulation of destruction cannot be determined until the water is cleared, a majority of the city is cleaned up and the economy moves forward. It just takes time to measure the breadth of the storms in the aftermath. With that being said, these are all predictions for how the economy will be ultimately impacted at this time. Like we have mentioned in class, confidence is a key factor as a leading indicator for the economy. So, if people think that the damage is a lot worse than it is, the market will reflect that with people pulling out of investments from the areas and businesses affected by the storms.

Not only are the economic environments in the states where the hurricanes hit affected, but the entire country could feel the ripple effect of those record-breaking storms. According to JLT Re, a global reinsurance brokerage and consulting firm, “the estimated U.S. insured losses, excluding any National Flood Insurance Program claims, are $20 billion to $25 billion from Harvey and $40 billion to $60 billion from Irma.” Keep in mind, it is still too early to tell the exact effects of the hurricanes and if it causes a significant impact on Americans who live outside of the areas hit. The government will be responsible for a big chunk of the cost due flood insurance, which is not included in home owner’s insurance and is the government’s responsibility. Both hurricanes have the potential to be two of the most expensive, not only from an economic perspective, but a human one, which does not look promising for the commercial property insurance market.

But, from a Keynesian perspective, there will be financial and personal suffering initially, however, in terms of the greater economy, it will not be too disastrous and probably be better for jobs and the construction business. With reconstruction and relief efforts, a lot of money will be pumped back into the economy of those respective cities which will allow the economy to somewhat bounce back. I know there does not seem to be a light at the end of the tunnel at the moment, but the economy will weather this storm and re-stabilize. It will just take time. It definitely did not ease the blow that two devastating hurricanes hit within a month of one another, there is a potential Hurricane Jose on the horizon and more, but our flexible economy will be alright, even if it is at the cost of short term anguish.

Trump’s Tweets and the Dow

President Trump’s recent election has been accompanied by many ups and downs for the United States, but in terms of the Dow Jones Industrial Average, the Trump administration has proved to be a healthy change. After the election, excitement around the new president’s policy promises caused the Dow to soar to record-breaking heights. It reached 22,000 even in the midst of unrest in the administration’s leadership according to CNN. It is interesting to note the disconnect between political turmoil and the Dow as of late. President Trump’s administration has set many precedents so far and one is the number of high-level advisors that have left the president’s side in such a short window of time. With that being said, the Dow has not been severely affected. The president continues to be its biggest cheerleader and tweets predictions about it as well. CNN notes that not only is this unheard of for a president to weigh in so frequently about the stock market, but to target the Dow specifically in his comments is new. This recent rhetoric surrounding the stock market is not only unprecedented, but it will not last. The market is constantly fluctuating and what goes up, must come down. It will be interesting to see how the new president reacts to the Dow going in the opposite direction. Will he remain outspoken or zip his lips? While we are all inclined to look at all of president Trump’s statements with a grain of salt, the Dow does actually indicate the economy is doing well. CNN Money questions if that the rise of the Dow is due to the new president’s pro-business agenda or lasting effects of President Obama’s rule? We will never know. Nonetheless, confidence is high in the stock market since the election in 2016 and as an economic indicator, the Dow is providing no need to worry about the market’s health. What is on the horizon though, is the reality that the stock market is a malleable entity and it will fluctuate. Confidence and campaign promises are keeping the Dow in an upward rise these days and despite threats of Russian probes and potential for a missile attack from North Korea, the stock market has remained stable for the most part. Stay tuned for more updates on the continuing saga of an interesting correlation between a rocky administration and a unique rise of the Dow Jones Industrial Average in next week’s edition of “Trump’s Tweets.”

 

Sources: http://money.cnn.com/2017/07/20/investing/trump-wall-street-stock-market-record/index.html

http://money.cnn.com/2017/08/02/investing/dow-22000-trump-apple-wall-street/index.html

http://www.marketwatch.com/story/trump-tweet-shows-hes-a-dow-jones-industrial-average-man-2017-08-01