These are not the best of times in the U.S. economic landscape as hurricanes of epic proportions rocked its coastal cities. Last month, Hurricane Harvey drenched Houston leaving a path of massive destruction behind. Earlier this week, Hurricane Irma made landfall in Florida and Georgia, and the states are still in SOS alert mode.
The U.S. is yet to fix the mess of the colossal destruction from Hurricane Harvey and Hurricane Irma; yet, Hurricane Jose is already building up momentum in the middle of the Atlantic Ocean and it might take a odd looping path to make a landfall in the Southeast coast within the next five days
Economists estimates that Hurricane Harvey has caused about $180 billion in damages. Economists forecast that Irma had caused about $30 billion in total losses and more than 60,000 utility workers are facing the uphill task of restoring electricity to Florida and other areas affected by Irma.
Hurricane Jose is yet to made a landfall, but economists are predicting another $18 billion in total losses if Jose makes its way to the U.S. This piece examines the realities that investors can expect in the U.S. economy through the end of the year.
Analysts predict gloomy economic outlook for the U.S. in Q3
Economists are still trying to measure the economic toll of the recent hurricanes on the U.S. economic landscape. Hurricane Harvey has already caused disruptions in the heart of the refinery and petrochemical industries of the U.S. The reduction in the country's refining capacity and loss of oil production could in turn cause ripple effects that will reverberate through the economy.
Analysts at Goldman Sachs (NYSE:GS) have trimmed their GDP forecasts for the U.S. economy in the third quarter to accommodate the losses caused by the recent spate of hurricanes. Goldman Sachs now expects the U.S. economy to grow by 2% in Q3 down from the previous forecasts of 2.8%. Spencer Hill, in a note to Goldman Sachs clients noted that "The uncertainty around all of these figures is high, but there is little doubt that the combined impact of Harvey and Irma will be particularly severe. We continue to expect a sizeable drag from hurricanes on Q3 growth."
Adam Kamins, a senior economist at Moody's Analytics also observes that the extent of the damage from the hurricanes and attendant floods "will likely be much higher than most recent hurricanes have been… That's due to very high levels of housing density where some of the most severe flooding is taking place.
Because of that you have very high expected property and vehicle damage."
There's a bright spot for the economy in the USD
Despite the aforementioned gloomy economic forecasts for the United States, investors can relax in the glimmer of hope that the U.S. dollar provides. The U.S. dollar Index is currently trading up around 92.41 after booking a sharp uptrend from multiyear lows. The U.S. inflation data due later this week might provide a boost to the USD if inflation data shows an upside to burn the traders who had taken short positions on the USD.
One of the reasons for the uptrend in the USD is that was that the destruction caused by Hurricane Irma was less than the anticipated damage; hence, investors could breathe a sigh of relief to send the greenback up against a basket of rival currencies.
It is also important to note that some economists believe that the USD has already seen a bottom for the short term and the only place that it can go from here is, up. Ironically, the sentiment on the greenback in the forex market seems to be mostly cautious as investors continue to worry about dovish commentary for the U.S. Federal Reserve.
However, the fact that the ECB President Mario Draghi has expressed fears about uncertainties in the EUR exchange rate suggests that the Euro might soon give back some of its recent gains against the USD. DoubleLine CEO Jeffrey Gundlach, one of the few guys that correctly predicted Donald Trump's victory in the 2016 elections has submitted that "the dollar for the short term has bottomed" and he predicts that the dollar index will climb higher to the 96 or 97 level before it eventually losses steam.