Even before an expected $6-billion (U.S.) deluge of insurance claims, the billions in Hurricane Sandy’s economic toll are already being tallied across the United States as the storm shutters businesses, idles workers and grounds air travellers.
It will be months before the final cost of the storm is known as Americans survey the damage left by Sandy, which was expected to trigger high winds, coastal flooding and power outages throughout the eastern U.S. Total losses to the economy from Sandy could be in the tens of billions of dollars.
Economists pointed out that while short-term costs are often very high, the long-term impact, even of destructive storms, is minimal.
“These storms tend to leave a significant mark in many areas, but their net impact, especially over one or two quarters, doesn’t tend to be more than a blip,” said Toronto-Dominion bank economist Derek Burleton.
There are always winners and losers, resulting in a net economic impact that’s typically “quite modest,” he said.
That’s because much of the lost economic output is quickly recovered. Shoppers delay purchases and travel, but don’t necessarily cancel it altogether. And businesses quickly make up for any lost production. Nonetheless, the “reach” of the storm is massive, affecting as much as a third of the U.S. population, Mr. Burleton acknowledged.
The area in the direct path of the storm has a daily gross domestic product of $10-billion, or roughly a quarter of U.S. daily economic output, according to an estimate by Moody’s Analytics.
Nearly 10,000 airline flights have already been cancelled across the U.S. and major airports on the East Coast were closed Monday. And officials warned that transit systems in New York City, Washington and New Jersey may not operate for a second business day Tuesday, leaving millions unable to get to work, even if their employers are open for business.
“The transportation system is the lifeblood of the New York City region, and suspending all service is not a step I take lightly,” New York State Governor Andrew Cuomo said Monday.
At least two major oil refineries – including New Jersey refineries owned by Phillips 66 and Hess Corp. – closed down Monday, while several others cut production, due to anticipated problems getting tanker deliveries of crude.
Property and casualty insurers are typically the biggest losers from hurricanes. But the global industry says it will be able to manage the expected toll of Sandy because 2012 has seen relatively few natural disasters. Insurers have also ratcheted up premiums and tightened underwriting standards in recent years, especially to customers in Hurricane-prone areas on the U.S. East Coast.
Shares of major insurers, such as Travelers Cos. and Allstate Corp. fell in overseas trading Monday as the storm neared the coast.
Insured losses from the storm could top $6-billion, led by damages in Pennsylvania, New Jersey, Maryland and New York, according to estimates from Kinetic Analysis and compiled by Bloomberg.
Hurricane Irene, which caused extensive flooding throughout New England last year, produced insured losses of $4.3-billion.
Some key economic indicators could be skewed by the storm. October retail sales will likely take a hit as businesses shut their doors and consumers stay home. But November sales could be higher as a result of delayed purchases.
Jobless claims could drop because the unemployed can’t get to government offices to register claims.
One key statistic that won’t be affected is the October jobs report, which is based on a survey conducted earlier in the month.
A lot of the new infrastructure that eventually replaces what Sandy destroys will be “more modern and productive,” according to economist and business professor Peter Morici of the University of Maryland. That minimizes the net impact, he said.
“The total effects of natural disasters of the scale of Sandy are not as devastating two years down the road,” Prof. Morici said.