The full effect on the economy of Hurricane Sandy won’t be known until well after the storm has blown by, but observers are already trying to estimate what the cost will come to — as well as the benefits created for some sectors of the economy by the Frankenstorm’s wholesale destruction.
With stock exchanges in the U.S. shut down and an estimated 60 million people stranded at home in the northeast, the storm’s economic impact is already being felt.
“By disrupting activity, the storm will impart a downward skew to many October, and possibly November, economic indicators,” Bank of Montreal economist Sal Guatieri wrote in a client note.
But just how much of an impact will depend on the severity of the storm. University of Maryland macroeconomist Peter Morici estimates the storm will impact about 25 per cent of the U.S.’s economy, causing as much as $45 billion in losses, reports the CBC.
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Hurricane Sandy
"It seems likely that Sandy will impose greater destruction of property [than last year's Hurricane Irene], and add to that the loss of about two days commercial activity, spread over a week across 25 per cent of the economy, an initial estimate of the economic losses imposed by Sandy is about $35- to $45-billion,” he said.
How much damage it does to Canada’s economy will depend on how strong the storm is when it crosses the Great Lakes later this week. If the storm’s worst spares Canada, the economic impact will be limited to the residual effects of shutdowns in the U.S.; lost imports, lost business and tourism travel, delayed business deals.
"The big story this morning is how much stuff is shut down," Mark Vitner, senior economist with Wells Fargo Securities, told CNN. "Business interruption is the biggest impact, at least until we see what happens in terms of property damage."
Yet the flipside of the coin is that, after the initial damage, Hurricane Sandy will give the economy a boost of the sort typically seen in the aftermath of large disasters, when rebuilding begins.
“Home Depot, for example, will do a monumental amount of business,” writes Jeff Macke at Yahoo! Finance.
But Macke suggests that the added spending from rebuilding won’t create wealth — just shift it to rebuilding from other household spending, especially ahead of the holiday shopping season.
“There has been an orgy of spending on the East Coast this weekend. Some of the spending that went towards flashlights, duct tape and galoshes will come out of the kids' stockings. It's just a matter of how much,” Macke writes.
All the same, the University of Maryland’s Morici estimates that the hurricane “will unleash at least $15 billion to $20 billion in direct spending.”
Disasters like this “can give the ailing construction sector a boost, and unleash smart reinvestment that actually improves stricken areas and the lives of those that survive intact,” he said, as quoted at the Globe and Mail.
Over at the Forbes blog, Tim Worstall raises moral objections to this line of thinking.
“It’s often said that WWII ended the Great Depression: which it did according to the GDP numbers,” Worstall writes. “Yet there’s something slightly wrong about a measure which says that building things in order to blow them up is an increase in wealth. Not to say killing lots of people in the process.”
Worstall argues that the economic boost from a disaster is misleading because it doesn't take into account the human impact, and the fact that real wealth has been destroyed.
He concludes: “Yes, the rebound from Sandy may well provide a boost to the economy. But that’s a function of the way that we measure that economy, not a real boost in our general wealth.”