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Hurricane Katrina and its Impact on the New Orleans Economy

Paper Type: Free Essay Subject: Economics
Wordcount: 1498 words Published: 1st Jan 2015

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The Hurricane Katrina of the 2005 had hit the areas like, Bahamas, Cuba, South Florida, Louisiana and especially, New Orleans as it was one of the deadliest hurricanes in the history of the United States. Its greatest impact was seen in New Orleans, Louisiana with estimations of about 80% of the city being wiped out and the overall damages due to hurricane were pegged at more than $200 billion and 1,836 people lost their lives.

New Orleans Economy

Though the region contributes merely 2% of the gross domestic product of the USA, it plays a vital role in the growth and development of the country as the New Orleans port is one of the busiest and largest in the world. It is also a centre for the maritime industry. Another key industry at New Orleans is the country’s one of the major sources for petrochemical productions with oil refining facilities. It is also one of the major educational hubs of the country homing over 50,000 degree students.

Besides, tourists from worldwide folk at the pristine beaches of New Orleans with over $5.5 billion turnover every year contributing about 40% of the tax revenue of New Orleans with about 10 million visitors. New Orleans is also one of the 10 most visited cities in the USA.

The employment scenario before the Hurricane Katrina was different in New Orleans which could be understood from the fact that from 1990 to 2000, the employment in U.S. economy grew by 19.5 percent creating more than 21 million jobs whereas for the corresponding period, the population in the country had increased by 13 percent i.e., about 32 million people. However, in New Orleans city lost both jobs and population in the same corresponding period. Little less than half of the population in the city was employed in hospitality, trading, medical and healthcare and government. (Cashell & Labonte, 2005)

However, there was a shift in pattern of the employment base and tourism became one of the major employers with contributing 16 percent of total employment and government employment was about 20 percent. At the same time, the gap of average wage between national rate and New Orleans had widened.

Export Hub

Having three main industries in New Orleans namely, ports, education and tourism which have remained backbone for the local employment. The ports at New Orleans have capacity of handling about 5,000 ships every year from the docks of 60 countries. The port of New Orleans along with the Port of South Louisiana near LaPlace accounts for the maximum bulk shipping in the world. The major exports from these ports are petroleum products, food and grain and minerals. Whereas, the key imports are mainly with Latin America which includes coffee, cocoa beans, chemicals and petroleum. (Cashell & Labonte, 2005)


New Orleans city has Tulane University located in along with the University of New Orleans, Lyoyla University, Xavier University, Southern University, Dillard University and Louisiana State University Medical School. New Orleans hence, is a major hub for the degree students enrolling significantly of African-American students.

Post-Katrina Economic Impact

Following the devastating hurricane Katrina, the loss of output reduced the economic growth of the region in later of 2005 and resumed the economic activities in early 2006. However, the increase in spending while rebuilding the city and restoration measures had expected to increase the growth rate of the region for first two quarters of 2006 and the macroeconomic advisors changed their estimations for the growth from 3.2 per cent each for both quarters in 2006 to 4.4 per cent and 3.8 per cent respectively. (AbcNews, n.d.).

Impact on Energy and Trade

For the nation as a whole, its Gulf Region is a key producer of oil and natural gas contributing 6.5 percent and 16 percent of consumption of crude oil and gas respectively. Due to Hurricane Katrina, the refining of crude oil and petroleum loss is estimated of about 2 million barrels per day as the refining capacities had to shut. Nonetheless, major pipelines supplying crude and petroleum to the East, South and Midwest costs also originate in Gulf which created impact on petroleum prices. Energy prices fluctuations in any economy leaves large impacts on the nation which has been observed in the disasters like wars and recessions. It leaves behind losses and opportunity losses hurdling the national growth rate indirectly. According to studies, mere 10 percent of rise in oil prices for about three months also can affect the cumulative growth of the economy curtailing it by about 0.7 per cent to 1.4 per cent per annum. It suggests that a small price rise in the key component like oil can have a modest impact and sharp impact on the national economy. According to the Energy Department, gasoline had set a new record price on September 5, 2005 at $3.07 per gallon. Dean Baker, economist and co-director at the Center for Economic and Policy Research had opined that the rise in prices was because of short in supply due to loss of refining capacity slowing the growth rate of economy slightly in the fourth quarter. “These immediate effects had largely dissipated by the end of the year. If anything, the rebuilding from the storm (financed by insurance and government assistance) was giving a modest boost to the economy by the beginning of 2006,” Dean was quoted in a news report. (AbcNews, n.d.)

The hurricane in New Orleans had forced to cease about 95 per cent of oil production from very second day of the disaster striking. Though, the mammoth works of rebuilding and restorations were in place down to 10 months also from the day of disaster, the yearly oil production was 30 per cent less than before the Katrina.

The refineries where shut down across the region and from nine facilities with capacity of refining up to 1.5 million barrels a day, seven were operational by November 2005 (Mcculey, 2007). Rest of two had taken longer time to commence. One of the refineries producing 247,000 barrels a day could start only after 8 months in May.

Moreover, thousands of jobs were lost combining with the sharp increase in prices affecting the economic growth in the last quarter of 2005. The country’s GDP had seen a sharp fall in the growth rate at 1.8 per cent for the respective quarter in comparison to 4.2 per cent of GDP growth for the corresponding period in the previous year.

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Mesirow Financial chief economist Diane Swonk had commented that Katrina had left distortionary impact on the economy. After a hike in the fuel prices, they were again dipped less than $3 per gallon in first quarter of 2006 as the federal government along with the private enterprises had pumped in millions of dollars in rescue and restoration initiatives. The impact of this on GDP was very positive and the growth rate was registered at 5.6 per cent in the same period. Increase in household spending was also recovered in the same period with the fuel prices returning to normalcy.

New Orleans after Two Years from the Disaster

According to the Time Magazine, about 450,000 population of New Orleans had not returned to the city even after two years of the disaster after a majority population was evacuated and some had migrated in 2005. The unemployment rate had gone up in 2007 at 5.1 per cent from 4.5 per cent in 2006 in Orleans Parish. (Mcculey, 2007)

The industries which had sustained the hurricane had started posting positive financial results which was a positive sign of the recovery though new enterprises were restraining from the region due to its vulnerability. (Brinkley, 2006)

The ports of New Orleans were first to recover from the disaster and within two weeks of devastation, first ship call was received at the port. Sooner, the cargo traffic was in place contributing faster recovery as about 60,000 jobs were related to the ports and its operations in New Orleans. In 2007, about 500,000 passengers through cruise ship were estimated to arrive in New Orleans which was inching towards the figure of 2004 when 750,000 passengers through cruise had arrived at the port. (Dolfman, Wasser, & Bergman, 2007)


Hence, the impact of Hurricane Katrina on the economy of New Orleans has been mixed as it shrunk the growth of the region but after the setback also rebounded with vengeance. It also changed the landscape of employment pattern and flow of tourists as tourism is one of the key industries here. The long lasting impact of the hurricane will remain in the minds of locals and those who lost their family and friends which could not be healed ever and as much as the economic damages can be. As the Time magazine had stated in its issue of 2007 that there were certain things in New Orleans which will never be like before. (Mcculey, 2007)


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