What are the effects of Hurricanes Katrina and Rita on U.S. International Trade in Goods and Services and on the U.S. International Transactions Accounts?

The economic effects of Hurricanes Katrina and Rita are reflected in the source data underlying the joint BEA/Census Bureau release, U.S. International Trade in Goods and Services. However, source data providers generally cannot isolate those effects and BEA cannot determine the effects of the hurricanes on any aggregate in the release.

The hurricanes caused a temporary loss of petroleum production and refining capacity and other disruptions that affected the value of oil and other commodities that are traded internationally by the United States. This will affect U.S. trade in goods beginning with data covering August 2005.

The hurricanes also will increase insurance and reinsurance claims received from foreign insurance companies but, under the new methodology that BEA recently adopted, the impact on international trade in insurance services will be small (see http://www.bea.gov/bea/faq/national/insurance_services_gdp.htm).

The U.S. International Transactions Accounts (ITAs) will reflect the effects of the hurricanes on trade in goods and services and on the other components of the accounts. However, providers of the source data used in these accounts generally cannot isolate those effects, and BEA cannot determine the effects of the hurricanes on any aggregate in the ITAs.

The hurricanes will have a large effect on net unilateral current transfers. Any insurance and reinsurance claims received by U.S. companies from foreign insurance companies that are in excess of “expected” claims will be reflected in this account.* In addition, donations from abroad for hurricane relief will be reflected in this account. These two increases in U.S. receipts will cause net unilateral current transfers to become less negative and, taken by themselves, will reduce the current account deficit in the third quarter of 2005. Because comprehensive source data on actual claims are not available for the release of the preliminary estimates for the third quarter, BEA will make explicit adjustments to net unilateral current transfers. These adjustments will be phased out as additional source data are received. Subsequent quarters may be affected by claims related to business interruption insurance.

In addition, income payments and financial flows will reflect the effects of the hurricanes on the earnings of foreign-owned companies located in the Gulf region in the third and subsequent quarters.

* “Expected” claims are estimated as premiums multiplied by the historical average of claims as a percentage of premiums.