Storm’s cost may hit $50B; rebuilding to ease blow

CHRISTOPHER S. RUGABER

MARTIN CRUTSINGER

AP Eco­nom­ics Writers

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 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.

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.

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 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.

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’re going.

On Tues­day, more than 6,000 flights were can­celed, accord­ing to the flight-tracking ser­vice FlightAware. More than 500 flights sched­uled for Wednes­day were also canceled.

The three big New York air­ports were closed Tues­day by the Port Author­ity of New York and New Jer­sey. New York has the nation’s busiest air­space, so can­cel­la­tions there dras­ti­cally affect travel in other cities.

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 thinks the econ­omy will grow at an annual rate of 1.5 per­cent to 2 per­cent in the fourth quar­ter. It expanded at a 2 per­cent annual rate last quarter.

But 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.

But she noted that the storm should give a boost to 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 econ­omy hard.

Major retail­ers began try­ing Tues­day to ramp up their oper­a­tions before the crit­i­cal hol­i­day shop­ping period.

Sears Hold­ings Corp., which oper­ates Kmart and Sears, said 80 of its stores were still closed as of mid­day Tues­day, down from 187 Mon­day. Wal-Mart Stores Inc., the world’s biggest retailer, said it was work­ing to reopen the 168 stores it closed. And Dar­den Restau­rants Inc., par­ent com­pany of Olive Gar­den and Red Lob­ster, by Tues­day after­noon had reopened roughly 160 of the 260 restau­rants it closed Monday.

Retail­ers col­lect up to 40 per­cent of their annual rev­enue in Novem­ber and Decem­ber. Retail­ers, exclud­ing restau­rants, could lose at least $25 bil­lion in sales this week, esti­mates Burt Flickinger III of retail con­sul­tancy Strate­gic Resource Group. Because of the storm, he’s reduced his fore­cast for hol­i­day sales to a 2.1 per­cent increase over last year from the 3.2 per­cent increase he had pre­dicted earlier.

Reopen­ing is often dif­fi­cult after a storm. New York City’s sub­ways and buses remained closed Tues­day, mak­ing it hard for employ­ees to get to work. Macy’s and Saks Fifth Avenue flag­ship stores stayed closed Tues­day — bad news for those retail­ers, because major depart­ment stores can derive 10 per­cent of annual sales from their Man­hat­tan locations.

Still, those stores that could open for busi­ness did. A West­side Mar­ket in Man­hat­tan remained open 24 hours a day through­out the storm, even though only about 20 per­cent of work­ers man­aged to show up Mon­day and Tuesday.

“They found a way to get here — I don’t know how,” store man­ager Jay Bilone said.

Econ­o­mists expect that actual dam­ages from Hur­ri­cane Sandy will exceed those caused last year by Hur­ri­cane Irene, which cost $15.8 bil­lion. Irene had lit­tle effect on the nation’s growth.

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.

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