Two explosions overnight due to Harvey storm flooding at an Arkema (ARKAY - Free Report) chemical plant in Crosby, TX has caused an evacuation of up to 1.5 miles from the plant. Reports this morning are that the explosions are now contained, which is obviously good news. Overly pressurized compounds compromised at the plant caused the explosions, which were not kept cool by electrical generators which were put out due to the storm waters.
This also speaks to infrastructure difficulties ahead elsewhere for the Gulf Coast region as flood waters recede. Where we are already seeing the impact in the marketplace are in gasoline prices, which are surging again as supplies continue to have been cut back due to the storm. But what are residents likely to find in terms of flood damage once the area dries out?
According to NFIP, the FEMA segment dealing directly with flood insurance and flood-plane management, estimates 500K policies will be affected by Harvey, at an estimated cost of $70-90 billion of flood claim costs. By comparison, the largest payout for flood damage insurance NFIP has encountered was Hurricane Katrina in 2005, which cost the agency $16.3 billion. So Harvey easily looks to be the costliest storm — in this respect — in U.S. history.
There will be myriad issues affected directly by the damage Harvey has caused, even to the eventuality of new jobless claims. Yet this morning’s headline number for Initial Jobless Claims was 236K, up 1000 claims from the previous week but still well in-range that demonstrates a robust labor market. Continuing claims reached 1.942 million, which has slowly been melting off the 2 million threshold, another indication of employment strength.
Tomorrow we will see the August non-farm payroll report from the Bureau of Labor Statistics (BLS), where analysts still expect a monthly new jobs number of 180K. This is even after the private-sector payroll read from ADP (ADP) yesterday was well higher than forecasted. So look for Friday’s BLS number to surprise to the upside (although the BLS and ADP reads usually correlate better upon future revisions; sometimes the first read for each are widely disparate).
Besides Hurricane Harvey damage and weekly/monthly jobs numbers, the Fed — which meets later this month to decide on whether to raise interest rates — looks at other metrics such as PCE. Here we continue to see less gaudy, even boring, numbers: 0.4% for July Personal Income, where 0.3% was expected (the core read was just 0.1%). Consumer Spending was the reverse: 0.3%, where 0.4% was expected. These are still well off the 2% yearly target the Fed has.
These figures are not likely to move the needle much for the Fed Presidents’ decision-making in the next couple weeks. What it does is further push the narrative that even though consumers are actually doing better economically, they have yet to spend like they are. We do not see inflation ratcheting up in any major way; at this stage, odds of a new quarter-point rate hike remain very low.