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Sandy Won’t Blow the Recovery Away Sandy Won’t Blow the Recovery Away

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Economy

Sandy Won’t Blow the Recovery Away

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Windows are boarded up to prevent damage from Hurricane Sandy at Papyrus on Wisconsin Avenue in Georgetown.(Rick Bloom)

Hurricane Sandy looks on track to wreak a lot of economic damage on the Eastern Seaboard. It’s almost impossible, as of early Monday, to predict how expensive that damage will be in the short term. But most economists expect the overall effect on the U.S. economy to be minimal over the next several months.

As the storm began soaking the mid-Atlantic and Northeast on Monday morning, the closest thing to a hard, partial calculation of its potential costs was the Federal Emergency Management Agency’s estimate that wind damage alone will total $2.5 to $3 billion.

 

History provides a wide range of possibilities for how costly the toll might get. The environmental scientist Roger Pielke Jr. posted a chart on his blog on Monday that included 10 past storms roughly comparable, in some manner, to Sandy. Their damages in today’s dollars ran from less than $1 billion to nearly $50 billion.

History suggests that Sandy, as has often been the case with big natural disasters, will prove to be a stumble in the recovery that will most likely be made up for by the end of the year.

Here’s why: Storms and other disasters tend to disrupt the economy right after they hit--but then spur a “catch-up” effect as communities dig out and rebuild.

 

“While these natural disasters tend to harm construction during impact, activity tends to quickly rebound after the storm passes,” said Ellen Zentner, an economist for the financial firm Nomura Securities. Because Sandy is hitting early in the fourth quarter of the year, she added, “I would expect the net effect to show little impact to the economy over the quarter.”

The same is probably true for gasoline prices, which often jump before big storms but fall during them, as demand plummets from drivers staying off roads. Refineries are a wild card: Prices could remain elevated if Sandy knocks out capacity in New Jersey or along the Delaware River, said Tom Kloza, chief oil analyst with Oil Price Information Service.

Otherwise, Kloza said, the storm will be one of this century’s great “demand destroyers” on the road. “We were on a steady road toward cheaper U.S. gasoline prices” before the storm, he said. “This wobble to the upside in the Northeast will interrupt that” briefly, he added, but he suspects prices will head back downward in November.

Some sectors of the economy will likely suffer on balance. City governments and retail stores in major cities such as Washington and New York will lose revenue from a day or more of inactivity--it’s not like returning workers will eat two lunches each, or pay twice the sales tax, when they go back to their offices later in the week.

 

Other effects are harder to forecast. The storm shut down much of Wall Street on Monday, halting trading on the New York Stock Exchange. Zentner said her “gut instinct” was that there would be no net impact on the economy overall, because traders would use backup facilities and markets around the world that remain functional.

Hurricane Sandy Flooding Leaves People Stranded

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