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Economists on hurricane: modest impact Add to ...

Rising stocks in Europe and Canada say pretty much everything you need to know about investor attitudes toward Hurricane Sandy: Physically devastating, but not economically devastating.

That assessment, backed up by some economists on Tuesday, comes as a relief given the fragile state of the U.S. economy right now. The economy grew 2 per cent at an annual pace in the third quarter, after growth of just 1.3 per cent in the second quarter.

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While unemployment levels have been making some progress recently, they are still very high and have forced the Federal Reserve to take action with unprecedented stimulus policies. And with Europe in recession and China slowing down, U.S. companies have been reporting disappointing earnings and revenues so far in the third-quarter reporting season.

Those disappointments have translated into a rough patch for the stock market. The S&P 500 tumbled 1.5 per cent last week and has fallen more than 2 per cent in October.

U.S. markets have been closed for the past two days because of the storm, marking the first back-to-back weather-related closures since 1888. The New York Stock Exchange expects to reopen on Wednesday.

If investors follow the moves in Europe and Canada, taking a relatively benign view of the storm that pounded New York and the east coast on Monday, the restart should be free of fireworks.

Here’s what a couple of economists are saying about economic effects of Hurricane Sandy.

Paul Ashworth, Capital Economics: “The flooding and power outages across large parts of the East Coast mean that Hurricane Sandy will undoubtedly hit economic output in the short-term. Some of that output will be made up before the end of the current quarter, however, and when we factor in the boost to GDP growth from the clean up, the overall economic impact is likely to be very modest.”

Beata Caranci, deputy chief economist, Toronto-Dominion Bank: “It’s important to note that the accounting of GDP is not impacted negatively by damages to physical assets, like buildings and infrastructure except through the indirect effects related to loss of work hours and business production. In contrast, the rebuilding of these assets has a direct and positive impact on GDP. It is this impact, along with the pick-up in production, inventories, and hours worked that will follow in the months to come, offering some offset to the near-term economic drag.”

 
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