Hurricane Helene: What We Are Learning

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As a regional Reserve Bank, we keep a pulse on the Fifth District economy using a variety of sources, including anecdotal information from contacts in our region. To supplement our initial analysis on the economic impact of Hurricane Helene, we've compiled some early insights that detail how our Fifth District communities are grappling with the storm's aftermath.

Current Conditions and Recovery Update

Hurricane Helene's human toll has been devastating. The death toll is well over 200 people, and rescue crews are still identifying missing people. Now that flooding has receded, the full extent of the storm's damage to property and infrastructure has been uncovered and is currently being assessed.As of Oct. 18, the North Carolina Department of Transportation had identified more than 6,900 sites of damaged roads and bridges. The implication is that there will be a large reconstruction effort for infrastructure that will require substantial state and federal funding. Repairing the washed out portion of Interstate 40 in North Carolina - close to the Tennessee border - is likely the largest of these projects, with early estimates suggesting it will take up to a year and $1 billion to fix.

Phone and electrical service seems much improved, but access to water is an ongoing issue in western North Carolina. The city of Asheville, for example, has resumed water service but expects to identify water line repair needs now that they have restored water service to most of the city. However, the water is not yet potable (i.e., drinking water), and water that is safe for food and beverage production is still missing and needs to be transported from other regions by tanker truck, which is considerably more expensive and troublesome.

As of Oct. 19, the U.S. Geological Survey reports that the total number of landslides caused by Hurricane Helene is well over 960. The resulting destruction and displacement of homes has been devastating to many households and raises concern about the longer-term impact of constrained housing supply in the area. The lack of flood insurance also raises the question of what happens to people made homeless by the storm without a ready option to rebuild.

In the meantime, resources are flowing into the region on a larger scale. Private efforts have added to the state and federal response across the region: Grocery stores, rest stops, and church parking lots have become supply points. Food, water, diapers, gas, and other supplies seem readily available in most places, with some reports that affected areas are now receiving more than they can store or process in the near future.

Sectoral Impacts

One feature of Helene that contacts emphasize is that severe damage is localized to very specific geographic areas. As such, the timeline for the reopening of businesses varies widely based on location. For example, while downtown Asheville is mostly untouched, areas such as the River Arts District were completely washed away by flooding. Elsewhere, activity in many smaller towns has recovered, while others like Chimney Rock and Swannanoa endured substantial damage with entire main streets washed away.

Additionally, contacts highlighted the limitations of business insurance, particularly for such an extended period of business disruption. Similar to homeowners, flood insurance had not been something most businesses worried about in the region. And even for establishments that had business interruption insurance, many of these policies are not activated by flooding and are instead intended to cover for a loss of power or other services. Moreover, these policies are limited in the time period they cover, with a week's worth of coverage seemingly common.

Leisure, Hospitality and Retail

October has typically been the most important month of the year for tourism in the region, as visitors come to see the fall foliage. Given the timing of Helene, attractions and hotels that are now open will still have lost a substantial amount of revenue in an industry that operates on thin margins. Additionally, the industry is populated with many small businesses that tend to be the most vulnerable to increased costs and low traffic in a storms' aftermath.

Tourists seem to be avoiding the places that were hard hit by Helene. One retailer with multiple locations across the region noted that all of their stores are open, including in Asheville. Most of their stores are seeing decent traffic, but the Asheville store has had very little traffic, suggesting that visitors are avoiding the hardest hit areas altogether. This view is corroborated by other contacts who have noted reduced traffic in Asheville and nearby communities.

If all of this seems troubling for tourism and related activities, it is made more difficult by the fact that some of the largest attractions in the region have yet to start operating. The Biltmore Estate, one of the top tourist destinations in Asheville, N.C., has announced they will reopen in early November, after extensive flooding near the entrance and along the French Broad River that runs through the property. It will take even longer for Tweetsie Railroad to reopen Nov. 29, which will give the popular theme park attraction in Blowing Rock, N.C., time to recover and rebuild.

Some of our contacts in the tourism industry noted that extreme weather tends to affect hotels in affected areas in three waves. First, occupancy falls sharply after the initial storm due to cancellations and displacement of residents, possibly with increased occupancy in surrounding areas that were not affected. Second, occupancy surges as displaced residents seek refuge, and recovery workers address the initial cleanup. Early reports indicate some hotels reopened for this purpose, even before water was restored to the building. Third, the longer-term rebuilding process boosts occupancy for several months or more. Reports from the region support this sequence of events. Contacts in Bristol, Va., and Greenville, S.C., noted elevated occupancy nearly a month after the storm, even as occupancy in the Asheville market remains well below typical levels.

Manufacturing

Although the localized impact of Helene's flooding means much of the manufacturing base in the region is operating once again, the storm has interrupted some notable manufacturing operations. Beer brewing is a major industry in Asheville, for example, and one that requires potable water for production. It appears a number of breweries sustained damage due to flooding and will not be ready for production for some time, if ever. For those otherwise undamaged, however, costly tanker trucks are the temporary solution for potable water as they are not yet able to use city water for production. Beverage distributors in other regional markets noted that they regrettably had to substitute away from disrupted Asheville-based breweries but were largely able to do so with little overall disruption.

Additionally, outdoor recreation manufacturing is another industry that has been severely disrupted by Hurricane Helene. Even for facilities that did not sustain major physical damage or interruptions to power and water, some production was halted due to employees being unable to commute to work after the storm. Also, for manufacturers that sell directly to consumers, the reduction in tourist foot traffic has been severely detrimental to sales. This has serious implications for an industry that was already experiencing weaker demand due to a pullback in spending on new, nonessential goods such as recreational vehicles, camp gear, bicycles, and other outdoor gear.

The region also contains a couple of facilities that are critical to national operations. Baxter International Inc., operates a plant in North Cove, N.C., that normally produces 60 percent of the nation's IV fluid supply. The facility was inundated during the storm and had to cease operations, causing a temporary shortage of IV fluids nationally. The Biden administration is using the Defense Production Act to lessen the impacts of the shortage and speed up the plant's reopening. On Oct. 21, Baxter reported that more than 2,500 employees were back to work, along with over 1,000 contractors for on-site recovery.

Similarly, Spruce Pine, N.C., is home to one of the few places high-purity quartz is mined worldwide for use in computer chip production. The mine was flooded but has since reopened and is starting to ramp up toward full production, likely averting a shortage for the chip industry. As these two examples prove, even smaller towns - North Cove's population is near 3,000, while Spruce Pine is home to a little over 2,000 - can have important impacts nationally.

Banking

Like other businesses in the region, some bank branches were flooded and took longer to reopen, while most have been operating after electric power and water were restored. As often happens during weather events, the loss of power limits electronic payment options, increasing the demand for currency. The initial blockage of key roads made it difficult for carriers to get additional cash into some areas, though that situation has improved substantially as roads reopened and banks supplemented existing bank branches with mobile ATMs.

One bank in the affected area noted increased demand for cash, particularly $20 bills, that drained supplies. The bank placed an order for additional cash that took four days to arrive. [Note: The Richmond Fed supplies the currency to banks, but banks contract with carriers for transport.] A contact from the bank noted that while coastal banks are used to holding higher cash reserves in advance of storms, this is not something normally done in the mountains. Other banks observed the need to plan more carefully for backup internet and power, with some having already made those investments.

Small Businesses and Small Communities

Some contacts expressed concerns about the long-term recoverability of the smallest towns with extensive damage. They noted that while Asheville and Boone, N.C., have economic engines and multiple accessibility routes, some smaller communities with just one or two access roads washed out by the flooding will face a harder time rebuilding. The challenges stem from potentially higher repair costs given the remote location and the lower priority assigned to the work given repairs in more densely populated areas. One contact also highlighted that people of modest means are most likely to live in these areas.

Similarly, some have observed that larger businesses would more quickly be able to resume operations, while smaller businesses may be more vulnerable. Larger companies have a greater ability to shift operations to other locations or draw on company resources for cleanup and repair. Conversely, small businesses have less access to capital and are in many cases still recovering from the financial impact of COVID-19, including loan repayment. Businesses still paying off COVID-19-related Small Business Administration (SBA) debt such as Economic Injury Disaster Loans may be more reluctant to take on new debt. Additionally, immediate disaster relief assistance for some small businesses is uncertain. After receiving an influx of disaster relief applications over the last month, the SBA announced that their fund has been depleted. Although loan applications are still live, their ability to replenish the fund will only be possible when Congress convenes in November. Even so, organizations are offering SBA training for bankers (North Carolina Bankers Association) and SBA loan application assistance for small businesses (Asheville Chamber Business Recovery Center).

Moving Forward

One enduring impression from contacts is that events such as Hurricane Helene, while devastating, also show how communities rally together during difficult times. Many reported a feeling of hope amid struggle and an eagerness to rebuild. Although the path forward for many households and businesses is uncertain, the recovery efforts underway stand as reminder of the resilience of our Fifth District communities. As a regional bank, we are committed to listening, learning, and coming to a more complete understanding of the lasting impact of the storm on our region in the weeks and months ahead.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.