Economy may skirt direct hit from Hurricane Sandy

WASHINGTON/NEW YORK Mon Oct 29, 2012 11:01pm GMT

People watch as storm clouds blow over the Manhattan skyline in New York, October 29, 2012. REUTERS/Keith Bedford

People watch as storm clouds blow over the Manhattan skyline in New York, October 29, 2012.

Credit: Reuters/Keith Bedford

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WASHINGTON/NEW YORK (Reuters) - Hurricane Sandy is shaping up to be one of the biggest storms ever to hit the United States but even with the severe damage that is expected, the blow to the economy is seen as short-term.

Economists say some of the impact caused by businesses closing will be offset by reconstruction efforts, and point to catastrophic storms like Katrina, which devastated New Orleans but did not deal lasting damage to the national economy.

Still, Sandy's sheer breadth - 10 states have declared a state of emergency - means it could hurt this quarter's economic output, even if the long-term impact ultimately proves neutral.

Gross domestic product in the region between New York and Washington amounts to some $2.5 trillion, so that every day the region's economy grinds to a halt amounts to about $10 billion in foregone output, said Mark Zandi, chief economist at Moody's Analytics.

At the local level of course, the destruction can be severe, and vary in direction depending on the industry affected.

Peter Morici at the University of Maryland estimates that Sandy will cause about $35 billion to $45 billion in losses and damages but then be followed by as much as $36 billion in recovery spending.

Damage caused by last year's Hurricane Irene totaled as much as $20 billion, he said.

Predicting the impact of Sandy is made all the harder by complexity of the rare, hybrid "super storm" involving other weather systems that could get trapped over the Northeastern United States and amplify inland flooding.

"The range of possible scenarios for Hurricane Sandy remains enormous. There are examples of natural disasters ultimately exacting only minimal toll - Irene - and others having an outsized impact, such as Hurricane Katrina when the (New Orleans) levees broke," said Eric Lascelles, chief economist RBC Global Asset Management Inc. "Really, it is a game of probabilities."

Disaster modeling company Eqecat forecast economic losses caused by Sandy at $10 billion to $20 billion.

The toll from Katrina in 2005 exceeded $100 billion by most accounts. U.S. economic growth slowed in the quarter immediately after the devastation inflicted on New Orleans but bounced back quickly.

The U.S. economy grew 2 percent in the third quarter of 2012, picking up from earlier in the year but still a weak number, as consumer spending helped to offset a worrisome pullback in business investment. Many analysts were already concerned that retail sales could suffer later this year.

Retailers bear a significant brunt of any storm's economic impact as shoppers stay at home. But the last-minute scramble for supplies and emergency goods has a moderating effect on the overall sales declines.

Still, Evan Gold, a senior vice-president at Planalytics, a Philadelphia consulting firm that advises businesses on weather-related matters, was less optimistic about seeing any upside, particularly with Sandy hitting so close to the holiday season.

"If consumers in this part of the country are spending hundreds, if not thousands, of dollars to buy things like generators, or after the storm, to do clean-up, that is likely going to cut into budgets that people might have for their holiday shopping," said Gold.

FORECASTERS CHANNEL METEOROLOGISTS

One thing economists do agree on is that data releases in coming weeks will be even harder than usual to forecast. For instance, the impact of Sandy is likely to skew figures on weekly jobless benefit applications and chain store sales.

"The monthly economic data will become more volatile - October retail sales, vehicle sales, and industrial production will be hurt, but they will bounce back in November and December," Zandi said.

"Restaurants will be hurt, but grocery stores will benefit; general merchandise stores will lose business, but online retailing should get a boost, he added. "Of course, if the storm knocks out major infrastructure like refineries, cell towers, trains, sea and airports, then the economic damage will be more severe and difficult to recover from."

The hurricane has the potential to cause some of the largest losses the global insurance industry has faced this year, but nothing that would strain insurers financially aside from hurting earnings this quarter, according to analysts.

(Additional reporting by Phil Wahba and Ben Berkowitz; Editing By Bill Schomberg and Sandra Maler)

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Comments (3)
RSaltyDog wrote:
This time. Remember Romney wants to cut FEMA and National Weather Service funding and have the states take on the burden of their hurricanes, floods, droughts, fires, earthquakes, etc. So this time because Obama did not cut funding the economy will survive. Next time? Not likely as states will go bankrupt especially states have hurricanes like Florida, Carolinas, Virginia. That will have a huge impact on the economy.

Oct 29, 2012 1:59am GMT  --  Report as abuse
paintcan wrote:
“about $35 billion to $45 billion in losses and damages but then be followed by as much as $36 billion in recovery spending”.

The employment prospects are welcome but the loss is still there – about 10 bln. There is no denying that something of value was destroyed and must be replaced. The bookkeeping may be jiggled and even jury-rigged but the fact of loss can’t quite be.

If Global-warming theory is a fact (and I think it is) and this happens far more frequently, that will hurt insurance companies and business alike. Now that the ACA ties American health care planning to the viability of insurance carriers, what happens because of this storm could signal the “waves” of the future and affect the ACA too.

If too many of these mega storms occur – who knows? – the economy will loose incrementally. If the figures cited prove accurate, it will be a big step back and some regaining of lost ground, but still a step back, from where it was. And insurers may have to make big payouts and not have much time to refill coffers.

A shrinking middle class also means a shrinking customer base for insurance products.

It might be wise for beach front communities to think about alternative storm frontage building models like building denser beach front development behind storm walls and use tidal fluctuation for their power needs. “Twelve foot surges” is going to rip those stick supported beachfront houses in New Jersey off their foundations very likely. They may as well be building flimsy houses as they do in Myanmar or Banda Aceh or Bangladesh even though there is something to be said for those examples in their own climates.

Oct 29, 2012 2:39am GMT  --  Report as abuse
kevivoe wrote:
Never has a massive storm been beneficial to economic recovery. Ever. Go to New Orleans and there is still issues since Katrina.

Oct 29, 2012 3:11am GMT  --  Report as abuse
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