by James Diffley, Philip Hopkins, David Iaia, and Michael Donnelly
While there remains much uncertainty about the status of relief and recovery estimates in New Orleans, Global Insight's US Regional Services has developed a preliminary estimate of the near-term impact of Katrina on total economic activity in the New Orleans metro area. Based on our analysis of the damages incurred as we know them now, as well as our deep understanding of the economic structure of New Orleans and the parishes that make up this metro, we cautiously conclude the following, as our best guess given our current level of information:
- Lost economic output in the metro area will total $7.5 billion in 2005 and $7.2 billion in 2006, as 311,000 jobs are lost for the remainder of this year.
- The City of New Orleans will incur the bulk of the losses—184,000 jobs and reduced output of $4.1 billion in 2005 and $4.4 billion in 2006.
These estimates represent only the diminution of economic activity in New Orleans due to the hurricane and flooding. They do not measure damages to buildings or infrastructure. Nor do they account for the costs due to relief for displaced families, or for cleanup costs. These will surely run in the tens of billions. We guardedly hope that New Orleans can gradually return to life during 2006. The exact timing, of course, is very uncertain at this time. The full damage to the city's infrastructure will only be known as the flood waters recede. The extent and timing of reconstruction activity is also yet to be determined, and will have a great impact on activity and output in 2006.
Importantly, not all of this activity will be lost from the US economy, or indeed the Louisiana economy, as some will shift to Baton Rouge and elsewhere across the South. We will be closely monitoring the ability of area businesses and their employees to temporarily relocate.
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