Superstorm Sandy will end up causing about US$20 billion in property damages and anywhere from US$10 billion to US$30 billion more in lost business, forecasting firm IHS Global Insight said.
In the long run, the devastation the storm inflicted on New York City and other parts of the US’ northeast will barely nick the US economy. That is the view of economists who say a slightly slower economy in coming weeks will likely be matched by reconstruction and repairs that will contribute to growth over time.
However, the short-term blow to the US economy could subtract about 0.6 percentage point from US economic growth in the quarter from last month to next month, IHS said. 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 US economic output.
New York City was all but closed off by car, train and air. The superstorm overflowed the city’s waterfront, flooded the financial district and subway tunnels, and cut power to hundreds of thousands. Power is expected to be fully restored in Manhattan and Brooklyn within four days.
The New York Stock Exchange was to reopen for regular trading yesterday after being shut down for two days. There is no evidence that the shutdown had any effect on the financial system or the economy. However, Wells Capital Management chief strategist Jim Paulsen said further delays might have rattled consumers and dampened their spending.
“It’s about confidence,” Paulsen said. “We’re watching these horrific images of the storm, and people are thinking whether they should ahead with that big purchase ... It doesn’t do any good to have another day with headlines saying the US can’t figure out how to open its stock exchange.”
Across US industries, disruptions will slow the economy temporarily. Some restaurants and stores will draw fewer customers. Factories may shut down or shorten shifts because of a drop in customer demand.
With some roads in the Northeast impassable after the storm, drivers will not 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 US$0.01 on Tuesday to US$3.53 — more than US$0.11 lower than a week ago.
Shipping and business travel has been suspended in areas of the northeast. More than 15,000 flights across the northeast and the world have been grounded, and it will take days for some passengers to get where they are going. The three big New York airports were closed on Tuesday. New York has the nation’s busiest airspace, so cancelations there drastically affect travel in other cities.
Economists noted that the short-term hit to the economy was worsened by the size of the population centers the storm hit. By contrast, rebuilding and restocking by businesses and consumers add to the nation’s GDP, they said.
Paul Ashworth, chief US economist at Capital Economics, expects the storm to shave 0.1 to 0.2 percentage point from annual economic growth in the quarter from last month to next month. He thinks the US economy will grow at an annual rate of between 1.5 percent and 2 percent in the fourth quarter. It grew at a 2 percent annual rate last quarter.
However, Ashworth said any losses this quarter should be made up later as rebuilding boosts sales at building supply stores and other companies.
In the short run, TD Bank deputy chief economist Beata Caranci said the economic damage could be worst for small businesses that lack the money and other resources to withstand lost sales.
However, she added that the storm should help the construction industry, which shed millions of workers after the housing bust. Many who lost construction jobs were skilled employees with disproportionately high pay and the loss of those jobs hit the US economy hard.
Major retailers on Tuesday began trying to ramp up their operations before the critical holiday shopping period.
Retailers collect up to 40 percent of their annual revenue during this month and next month. Retailers, excluding restaurants, could lose at least US$25 billion in sales this week, Burt Flickinger III of retail consultancy Strategic Resource Group said. Because of the storm, he has reduced his forecast for holiday sales to a 2.1 percent increase compared with last year from the 3.2 percent increase he had predicted earlier.
Insured losses from the superstorm will likely total between US$5 billion and US$10 billion, forecasting firm Eqecat said. Insurance losses are typically a fraction of the overall cost.
Chubb, Allstate and Travelers are the insurers most likely to suffer losses, Morgan Stanley analyst Greg Locraft said. Those companies claim a major share of the affected areas.
Yet, “as an insurance event, Sandy is going to be a blip on the balance sheet,” said Duncan Ellis, US property practice leader at Marsh, the insurance broker. “2012 has been a relatively catastrophe-free year.”
Economists expect actual property damages from Hurricane Sandy to exceed those caused last year by Hurricane Irene, which cost US$15.8 billion. Irene had little effect on the nation’s growth.
Sandy will likely be among the 10 costliest hurricanes in US history. It would still be far below the worst — Hurricane Katrina, which cost US$108 billion in 2005.