Economy expected to weather Sandy, economists predict
BY STEPHANIE ZIMMERMANN Consumer Reporter email@example.com October 29, 2012 7:06PM
Updated: December 1, 2012 6:25AM
Whatever damage the “superstorm” unleashed by Hurricane Sandy does to the economy, the cleanup will generate enough economic activity to make up for the disruption, a number of economists say.
So, even though this storm is making life miserable for people and businesses along the East Coast, the storm isn’t likely to slow the U.S. economy in the fourth quarter.
“I think the general conclusion is when you have a storm, it doesn’t wreck the economy,” said Robert Johnson, director of economic analysis for Chicago-based Morningstar, an independent investment research firm.
“There’s a slowdown in front but then there’s more spending on the back end,” Johnson said.
People who stay hunkered down at home or who lose food when the power goes out will eventually need to go out and buy supplies, hire contractors and restock their refrigerators.
The temporary lack of demand also may drive gas prices lower.
The economic impact could be more severe if the storm damages a port or a major manufacturing facility such as an oil refinery, said Mark Zandi, chief economist at Moody’s Analytics.
However, “assuming the storm simply disrupts things for a few days and it doesn’t do significant damage to infrastructure, then I don’t think it will have a significant national impact,” Zandi said.
Preliminary estimates are that storm damage will range between $10 billion and $20 billion. That could top last year’s Hurricane Irene, which cost $15.8 billion—but would be far lower than the cost of Hurricane Katrina, which cost $108 billion and caused 1,200 deaths in 2005.
The overall economy expanded at an annual rate of 2 percent in the July-September quarter. Zandi said he isn’t changing his forecast for similar growth in the current October-December quarter of 1.9 percent.
CoreLogic, a private data provider, estimates that there are 284,000 homes worth about $88 billion in the hurricane’s path.
However, the private insurance industry is in a position to absorb costs related to the storm, said Drew Woodbury, another Morningstar analyst, who added that private insurers are not on the hook for flood damage.
Insurance is by its nature a volatile business and is structured to absorb claims from storm damage, Woodbury said: “After Katrina, people got a lot smarter about how they spread their risk around.”
Eqecat Inc., which estimates disaster costs, on Monday issued estimates of $5 billion to $10 billion in insured losses for this storm.