How Much Did Hurricane Katrina Damage the U.S. Economy

Answer: For starters, Hurricane Katrina was a massive storm before it even made landfall. At its height, Katrina was a Category 5 monster. However, this alone wasn't enough to make Katrina the worst natural disaster in U.S. history. In fact, it did most of its damage after it hit land on August 29, 2005, after it was reclassified to a Category 3 hurricane.

Katrina Damage Estimates

The actual cost of Hurricane Katrina's damage was between $96-$125 billion, with $40-$66 billion in insured losses. Half of these losses were a result of flooding in New Orleans. An estimated 300,000 homes were destroyed or otherwise made uninhabitable. At least 118 million cubic yards of utter debris and devastation was left behind, making clean up efforts a mind-boggling attempt.

University of North Texas Profession Bernard Weinstein put the total economic loss from Katrina to be as high as $250 billion. (Source: Swiss Re, "Hurricane Katrina," January 25, 2007) That's because he takes into account not just the damage, but the impact for disrupted gas production and general effect on national economic growth. For example, in 2005, economic growth as measured by Gross Domestic Product (GDP) growth went from 3.8% in the third quarter (July-September, when Katrina hit) to 1.3% in the fourth quarter (October-December, when production losses were felt).

Fortunately, at that time the economy was still growing strongly, and by the first quarter in 2006 GDP growth bounced back to a robust 4.8%.(Source: BEA, National Accounts)

Why Did Katrina Damage the Economy So Much?

Hurricane Katrina affected 19% of U.S. oil production. Hurricanes Katrina (and a smaller previous Hurricane Rita) destroyed 113 offshore oil and gas platforms, damaged 457 oil and gas pipelines, and spilled nearly as much oil as the Exxon Valdez oil disaster. This caused oil prices to increase by $3 a barrel, and gas prices to nearly reach $5 a gallon. To stop the escalation in gas prices prices, the U.S. government released oil from its stockpile in the Strategic Petroleum Reserves.(Source: About.com U.S Politics, Gustav: Look For Gas Price Increase, August 31, 2008); CNN.com "Gustav Sends Oil Higher," August 31, 2008

Katrina's impact was so devastating because of its path. It struck the heart of Louisiana's sugar industry, with an estimated $500 million annual crop value, according to the American Sugar Cane League. This area of Louisiana had 50 chemical plants, which produced 25% of the nation's chemicals. The nearby Mississippi coast was home to 12 casinos, which took in $1.3 billion annually.

As important as these industries are, the main damage was done to the City of New Orleans. Hurricane Katrina caused $260 million in damage to the port, although it was open to ships just a week later. The city's tourism industry created $9.6 billion annually before Katrina, and has only recently returned to attracting 7.1 million visitors each year, up from 2.6 million in 2006.

Of more importance, but impossible to quantify, was the impact on people and animals. More people were displaced (770,000) than during the Dust Bowl migration during the Great Depression. About 1/10 of these (75,000 people) found out on their return that their homes had been destroyed.

The Louisiana death toll was 1,836 people. Old age was a contributing factor, since 71% of those who died were 60 years or older, while nearly half of those were more than seventy-five. Sadly, at least 68 were found in nursing homes, possibly abandoned by their caretakers. After the disaster, nearly 200 bodies were left unclaimed. Over 700 people were unaccounted for. The storm killed or made homeless 600,000 pets. 

How Does Katrina's Damage Compare to Other Natural Disasters?

Normally, hurricanes that hit the heavily populated East Coast cause the most damage. In 2012, Superstorm Sandy came ashore with 14-foot waves attacking Lower Manhattan, plunging the area into darkness and flooding the subway system. More than 8 million people along the Eastern Seaboard were out of power. The massive storm, although technically not a hurricane, dropped 2-3 feet of snow in West Virginia. Early estimates are that the storm will cost $20 billion in property damage, but much more in overall economic impact.

In 2011, Hurricane Irene hit New York and New England, but had slowed down dramatically after reaching landfall, and so didn't cause nearly as much damage as anticipated. Katrina was ten times more destructive than the second most expensive hurricane, Andrew, which was also a Category 5 storm when it hit Florida in 1995. It destroyed $35 billion in property, slightly more than Hurricane Ike, which was a Category 4 at its peak, and cost the U.S. economy $24.9 billion in 2008