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December 2005 Dr. James A. Richardson Alumni Professor of Economics Louisiana State University.

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Presentation on theme: "December 2005 Dr. James A. Richardson Alumni Professor of Economics Louisiana State University."— Presentation transcript:

1 December 2005 Dr. James A. Richardson Alumni Professor of Economics Louisiana State University

2 Global and National Economic Backdrop RGDP Interest Rates Energy Prices

3 RGDP Quarter RGDP 05-I 3.8% 05-II 3.3% 05-III 3.8%

4 RGDP Forecasts(9/05) QuarterGlobal Insight Pre-Katrina/Rita 05-I 3.8% 05-II 3.3% 05-III 3.8%(4.4%) 05-IV 2.8%* (3.3%) 06-I 3.6%(3.0%) 06-II 3.7%(3.0%) 06-III 3.0% 06-IV 2.7%

5 Hurricane Effects to National Economy: Second Half ‘05 Negatives factors: –Disruption of normal activities, especially shipping –Surge in gasoline & natural gas prices will squeeze consumer spending Note: New Orleans only about 0.4% of national economy All 3 states impacted: total component of RGDP=3.1%

6 Hurricane Effects to National Economy: First Half ‘06 Hurricanes destroy wealth; rebuilding wealth creates lots of new spending. Residential, non-residential, and public infrastructure spending will dominate the jump in RGDP—question is how fast in New Orleans area?



9 Shut-in Production: Oil


11 Shut-in Production: Natural Gas

12 Katrina & Rita 1.Katrina hit August 29 2.Rita hit September 23

13 Katrina: One of Largest Disaster in History Katrina:$200b+ 1988 Drought/Heat $61.6b 1980 Drought/Heat $48.4b Andrew: $27b ’93 Midwest flood $26.7b Charley: $14b

14 Impacts on New Orleans


16 Source of 18,000 N.O. Jobs? Eight $100 mm+ construction projects –Convention Center, LNG project, Huey Long Bridge expansion, Valero Refining, North Shore Marina Towers near Slidell, Plaza Towers Building in New Orleans, Hotel connected with land based casino, and Crescent City Power Plant Textron Marine & Land Bollinger Shipyards

17 Industries in New Orleans Not Expected to Contribute to Growth, Pre-Katrina Northup Grumman Shipyards—cut up to 800 jobs; cannot go below 5,200 because of contract with state Lockheed Martin Space Systems—must replace contracts for external fuel tank for NASA’s spacecraft Chemical Industries and Refineries National Finance Center

18 Katrina/Rita Effects New Orleans MSA

19 Displaced Persons: Louisiana Population of the “bowl”:2004 –Orleans: 462.3 –Jefferson: 453.6 –St. Bernard: 65.6 –Plaquemines: 29.0 –Total in Bowl 1,010.5 –+ St. Tammany: 213.6 –+St. Charles 50.1 –St. John the Bap. 45.6 –Total Area hit: 1,319.8

20 Impact on Housing Stock: Red Cross on Katrina & Rita November 8, 2005 Impact:Number Destroyed137,502 (Un-inhab.) Major 73,846 (Un-inhab.) Minor 70,689 Affected188,656 Inaccessible 2,489 TOTAL473,182 12 times next worst disaster in U.S. history

21 Andrew and Hugo Comparison Hurricane Andrew destroyed 28,153 houses in Florida; damaged 137,561 others; confidence in rebuilding was weak; only 2% of severely damaged homes had been completely rebuilt after six months. Hurricane Hugo devastated Charleston, South Carolina in 1989—almost 10,000 homes destroyed and over 110,000 damaged; Charleston was substantially rebuilt in six months and almost totally rebuilt within one year; everyone was confident about the rebuilding process

22 Insurance Implications Once water in a home: Flood, not homeowners, insurance –Lesser of 80% of depreciated value of home or $250,000 –$500k home; takes $400k to repair: must come up with $150k to rebuild –Many homeowners had zero flood insurance Business interruption coverage may not be operable once water in building

23 Other Obstacles to Rebuild? Debris removal: higher probability of contaminants Stricter building codes ahead? –Stronger design for home—passed in special session –Loss exceeds 50% of pre-flood price, must elevate to new base flood elevation –Cost of building homes in New Orleans will increase Getting mortgage and insurance when levee system still questionable? Result? Much repair work at a standstill— Confidence Issue

24 Model for Forecasting New Orleans MSA Recovery limited by availability of housing In New Orleans Metropolitan Area, 207,576 houses are uninhabitable. 2.42 persons per home = 502,334 persons (38% of population) Pre-K: Non-farm employment=621,000 Post-K: Down 38% or -236,000 jobs 2006: none of un-inhabitable rebuilt 2007: ½ of major damaged homes rebuilt


26 Key Issue: Housing In New Orleans Metropolitan Area Real issue is housing in Orleans Parish But this affects other parishes Cannot replace half of million people with trailer parks and tents Importance of Richard Baker Proposal: creation of Louisiana Recovery Corporation to settle outstanding mortgages, give property owners option to sell and repurchase at later date, and make infrastructure improvements

27 Other Sobering Facts about New Orleans Over 100,000 homes that cannot get power until wiring has been checked by licensed electrician. Meager job growth in 1990s; loss of employment in first part of the 2000s; and then modest growth in 2004. New Orleans was not hotspot of state in terms of economic development

28 New Orleans Employment Relative to Statewide Employment

29 Putting the Puzzle Together to Rebuild New Orleans Housing Jobs and Economic Development Public Service Facilities Enterprising Spirit, Creativity, And Risk Taking Public Policy

30 New Orleans needs a blend Public policy decisions make quickly and forthrightly A dose of the wild west mentality—we want to encourage risk taking and creativity for all types of industrial and commercial ventures

31 Baton Rouge MSA Outlook Pre-Katrina


33 Source of 8,800 New Jobs Baton Rouge MSA? Construction –Shintech $1 billion –Two expansions at Dow Chemicals –Georgia Pacific: $160 mm boiler steam unit –OLOL: $130 mm-heart center and children’s wing –BTR General: $80 mm expansion –7 other $50mm+ projects Trinity Shipyards: +150 jobs LA Generating: $1 bill expansion Big Cajun II?

34 Post-Katrina Impacts : Baton Rouge MSA From FEMA Assistance Applications: –MSA population increased 248,386 overnight –34% increase! Population will not permanently remain quarter million higher BTR population size limited by job availability

35 Post-Katrina Impacts : Baton Rouge MSA Our Model for BTR? –Population will settle in at +50,000 –Source? Permanent transfer of some New Orleans area firms to baton Rouge Baton Rouge will serve as bedroom community to many people working in New Orleans and commuting. We get retail and service business fallout. –+50,000 population means permanent job increase of 23,300


37 Impact on Other MSAs Lafayette – 5,200 jobs in 2006 and 1,600 jobs in 2007 (130,000 jobs currently) Houma—4,600 jobs in 2006 and 1,600 jobs in 2007 (80,000 jobs currently) Lake Charles—500 jobs in 2006 and 700 jobs in 2007 (currently 85,000 jobs) MSAs above Interstate 10—impact of Katrina and Rita minimal Rural Parishes—impact possibly in Tangipahoa Parish which could provide bedroom community for persons working in New Orleans, but not having housing


39 The Ultimate Tradeoff New Orleans as regional economic area cannot recover faster than housing can be provided, social facilities are available, and citizens can feel secure about their safety— this may be five to ten years. It will surely not be six to twelve months. Citizens cannot wait 5 years to get back to normalcy.

40 Issues Facing State and New Orleans Define new building codes; flood plains; rules and regulations of neighborhood restoration Policy for electricity restoration—cost of rebuilding infrastructure and cost per customer Property tax reassessment—covering outstanding bonds

41 Benchmarks for New Orleans What happens in January—private universities— how successful in their re-opening Schools opening in January, August Financial viability of health care providers Madri-Gras, Jazz Fest, and other unique attributes of New Orleans Major convention in July---can it handle a convention of 20,000 or so

42 Attitude about New Orleans Must first be realistic –Port –Oil and Gas –The Saints –Its Charm Optimistic about long-term—New Orleans will recover

43 Inspiration from John Stuart Mill “…what has so often excited wonder, the great rapidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war.” (Principles of Political Economy, Book 1, Chapter 5)

44 December 2005 Dr. James A. Richardson Alumni Professor of Economics Louisiana State University

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