Storm’s cost may hit $50 billion; rebuilding to ease blow
Posted: October 30, 2012 at 2:09 p.m.
WASHINGTON Superstorm Sandy will end up causing about $20 billion in property damages and $10 billion to $30 billion more in lost business, according to IHS Global Insight, a forecasting firm.
In the long run, the devastation the storm inflicted on New York City and other parts of the Northeast will barely nick the U.S. economy. That’s the view of economists who say higher gas prices and a slightly slower economy in coming weeks will likely be matched by reconstruction and repairs that will contribute to growth over time.
The short-term blow to the economy, though, could subtract about 0.6 percentage point from U.S. economic growth in the October-December quarter, IHS says. Retailers, airlines and home construction firms will likely lose some business.
The storm cut power to about 7 million homes, shut down 70 percent of East Coast oil refineries and inflicted worse-than-expected damage in the New York metro area. That area produces about 10 percent of U.S. economic output.
Most homeowners who suffered losses from flooding won’t be able to benefit from their insurance policies. Standard homeowner policies don’t cover flood damage, and few homeowners have flood insurance.
Across U.S. industries, disruptions will slow the economy temporarily. Some restaurants and stores will draw fewer customers. Factories may shut down or hold shorter shifts because of a short-term drop in customer demand.
Some of those losses won’t be so easily made up. Restaurants that lose two or three days of business, for example, won’t necessarily experience a rebound later. And money spent to repair a home may lead to less spending elsewhere.
With some roads in the Northeast impassable after the storm, drivers won’t be filling up as much. That will slow demand for gasoline. Pump prices, which had been declining before the storm, will likely keep slipping. The national average for a gallon of regular fell by about a penny Tuesday, to $3.53 — more than 11 cents lower than a week ago.
Economists noted that the hit to the economy in the short run was worsened by the size of the population centers the storm hit.
“Sandy hit a high-population-density area with a lot of expensive homes,” said Beata Caranci, deputy chief economist at TD Bank.
Hurricane damage to homes, businesses and roads reduces U.S. wealth. But it doesn’t subtract from the government’s calculation of economic activity.
By contrast, rebuilding and restocking by businesses and consumers add to the nation’s gross domestic product — the broadest gauge of economic production. GDP measures all goods and services produced in the United States.
Paul Ashworth, chief U.S. economist at Capital Economics, expects the storm to shave 0.1 to 0.2 percentage point from annual economic growth in the October-December quarter. He’s forecasting that the economy will grow at an annual rate of 1.5 percent to 2 percent in the fourth quarter.
Ashworth says any losses this quarter should be made up later as rebuilding boosts sales at building supply stores and other companies.
“People will load up on whatever they need to make repairs — roofing, dry wall, carpeting — to deal with the damage,” he says.
In the short run, Caranci said the economic damage could be heaviest for small businesses that lack the money and other resources to withstand lost sales.
“It will remain to be seen how long disruptions to electricity and infrastructure persist,” she said.
Sandy will likely be among the 10 costliest hurricanes in U.S. history. It would still be far below the worst — Hurricane Katrina, which cost $108 billion and caused 1,200 deaths in 2005.
But “there is every reason to believe that the hurricane won’t kick the legs out of an already-fragile US economy,” Caranci said.