Reports: What Harvey Did to Small Businesses, Individual Finances

Carlos Villegas

Months after Hurricane Harvey, remnants of its devastation remain. Photo: Flickr user GD Witteven.

In the past six months, there have been several analyses on the impact of Hurricane Harvey. Each has added an additional layer to our understanding – the most recent on the personal financial resilience of individuals, small businesses, and local commerce demonstrates a significant disruption in healthcare spending and debt payment patterns, highlighting a potential loss in welfare. During the week of landfall, healthcare spending dropped by an average of 63 percent. The decline did not recover more than two months after the storm.

The most recent analysis comes in a bundle of reports from JPMorgan Chase Institute (JPMCI), a global think tank using the colossal amount of data from JPMorgan Chase to inform decision makers on granular insights of the global economy. This is particularly significant because personal data is often difficult to access for researchers. The absence of personal data leaves us to inference the potential impact. Access to personal data at this level, better serves local decision-makers in recovery undertakings by increasing the certainty of specific welfare impacts.

Local Consumer Commerce in the Wake of a Hurricane

In the first report, JPMCI leverages their Local Consumer Commerce Index (LCCI), a measure of consumer spending tracking the monthly year-over-year growth of daily debit and credit card spending for Chase customers across 14 metropolitan areas, to provide insights into the regional impact on overall consumer spending. The LCCI is a significant tool for two reasons. First, it measures year-over-year growth, accounting for seasonal changes and accenting significant trends. Second, it helps local communities understand the general economic health of their consumers and businesses.

By this measure, consumer spending declined in the Houston metropolitan area the month of Hurricane Harvey’s landfall by 7.5 percent. But that decline in spending was offset completely by a 9.3 percent increase in spending the following month, termed the “recovery month.” Compared to the other metropolitan areas monitored by JPMCI, Houston was 1.1 percent below average prior to Harvey’s landfall, 8.1 percent below average the month of landfall, but 4.8 percent above average in the recovery month.

LCCI for 14 metropolitan areas with Houston and Miami highlighted. Source: JPMorgan Chase Institute.

Breaking that down, the report found that young people led the spending growth in the recovery month, with people under 25 having an increased spending growth of 26.3 percent year-over-year and 25 to 34 year olds having a 14.4 percent spending growth year-over-year. Additionally, the spending increase by categories was led by durable good purchases–things like large appliances, furniture, etc.–increasing by 29.4 percent in that same month.

While it seems the overall local economy more or less rebounded by this metric in the next month, it was partly on the backs of younger people, the same people that have the highest unemployment rates and relatively low labor force participation rates in the city, according to ACS estimates. It can be assumed the spending these folks are incurring is necessary for post-hurricane related expenses and arguably depleting their already precarious financial equity. On the whole, this data should be considered within the context of the fallacy of the broken-window theory: repairs don’t spur an economy rather they crowd-out efficient spending and decrease welfare.

Bend, Don’t Break: Small Business Financial Resilience After Hurricanes Harvey and Irma

The second report looks at the financial transactions of local small businesses, a particular area of concern for both residents and local decision makers. If the failure rate for businesses increases or the businesses become increasingly fragile as a result of a disaster, that could spell economic disaster for the vitality of a community.

Mirroring the findings of the previous report, small businesses witnessed a decline in cash balances during the week of Harvey. However, they largely recovered within two weeks, with few small businesses having significant revenue loss greater than four weeks. Many small businesses showed a remarkable degree of financial resiliency.

In greater detail, cash balances declined by 7.5 percent in Houston, reaching a low point at the start of the Labor Day weekend, and were back to normal rates by September 14. Additionally, small business owners continued to increase cash balances throughout the study period. Substantially, the financial resiliency can be attributed to the response of small businesses. As businesses recaptured their cash inflows, cash outflows dropped on average by 54 percent and took two weeks to return to normal levels.

The financial impacts were experienced across multiple industries with some short-term differences. Small real estate firms saw the most significant impact on inflows with an inflow decline of at least 84 percent year-over-year. Small healthcare service providers were least affected with a year-over-year decline of inflows of 48 percent or less.

Source: JPMorgan Chase Institute.

But the impact was uneven. Small businesses located in the 77026 zip code, which includes Kashmere Gardens, were the most likely to see the largest declines. There, 72 percent of small businesses saw declines of at least 50 percent or more year-over-year. However, four weeks after the hurricane this number dropped to 18 percent of small businesses, a contrast to its pre-hurricane level of 26 percent.

Many of the small businesses may have experienced physical losses that are unobservable in the financial data, the report noted. For example, the cash balances small business owners are holding back may be related to necessary expenses related to repairing and rebuilding damaged physical assets as owners wait to make large repairs.

Weathering the Storm: The Financial Impacts of hurricanes Harvey and Irma on One Million Households

The final report looks at daily individual transactions across the metropolitan area, offering a unique view into individual financial resilience.

Year-over-year change in total checking account inflows for Houston declined by 23 percent, relative to baseline, or an average decline of $447, for Houston residents, during the week of Harvey’s landfall. Overall checking account inflows recovered within six weeks after the storm.

Cumulative impact of Hurricane Harvey on checking account inflows (percent deviation from baseline). Source: JPMorgan Chase Institute.

During the same landfall week, outflows, or spending, declined by 34 percent, relative to baseline, accounting for an average decline of $562 in spending. These declines reflect the fact that many people could not get to work for that week.

The data also includes expected pre-hurricane spending. However, during the week of landfall, consumers cut spending across all categories, with healthcare spending declining 63 percent and remaining low 12 weeks after the hurricane.

Cumulative impact of Hurricane Harvey on checking account outflows (percent deviation from baseline). Source: JPMorgan Chase Institute.

Debt payments also dropped in the week of the hurricane and remained low during the observation window.

Significantly, the study finds drops in debt and bill payments were primarily due to people skipping a payment rather than paying a lower amount.

Cumulative impact of Hurricane Harvey on debt and bill payments. Source: JPMorgan Chase Institute.

Families may have simply missed a payment and never caught up because lenders offered lower debt payments, issued a forbearance, and/or removed late penalties and fees, according to the report. The lower consumer spending during the week of the hurricane would also likely result in lower credit card bills.

Perhaps the most striking observation, checking account balances have continued to grow in the Houston metropolitan area, with an average 10 percent increase, or $668 increase, 12 weeks after the storm. A portion of this amount is expected because families in the Houston region had more inflows than outflows directly after the week of the Hurricane and debt payments had not reached pre-storm levels. The researchers assert this may be an intentional decision, either due to caution, distress, or risk aversion.

On the whole, these reports highlight our financial resiliency but more importantly they highlight welfare gaps. The decline of healthcare spending is disconcerting in the face of the general uptick of disease and health concerns related to the storm. Additionally, the decline in checking accounts coupled with the failure to return to normal debt payment patterns accents a potential decline in credit worthiness that may impact individuals in vulnerable financial situations for years and further set back their recovery. While the higher checking balances for individuals and small businesses alike might mitigate this latter concern, it is impossible to know for sure if they have recovered or were merely waiting to spend on large rebuilding expenses.

Financial data at this level is useful in presenting the granular financial impacts of the storm, it demonstrates how data can be leveraged in the future and be informative to recovery efforts. These reports, along with the other analyses from other institutions, serve to remind and quantify damages to hierarchical levels of government.

Carlos Villegas is a staff researcher with the Kinder Institute’s Urban and Metropolitan Governance program.

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