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7:20 PM EST, November 9, 2012
By any measure, hurricane or not, Sandy packed a costly punch. Conservative estimates place the damage at $50 billion from property destruction and lost business — and only about $20 billion of that is covered by insurance.
The storm left deep emotional and financial scars and threw all of greater New York City into chaos for a week or more.
Surely that will knock an already weak economy down another notch, right?
No. When it comes to moving the economy, Sandy — like just about any storm not named Katrina — will have little effect, up or down. After all, as Mark Zandi of Moody's Analytics noted, the affected areas, from Washington, D.C., to Bridgeport, account for $2.1 trillion a year in total output of goods and services.
One key reason why Sandy's overall effect will be muted: The economy measures money spent, not physical losses or improvements. When a storm surge destroys houses in Old Saybrook, that's a huge personal loss to the owners — but it doesn't touch the economy unless it pushes people out of work for a time.
Then, when owners and insurers spend $20 million rebuilding those houses, and construction workers take that money and spend it on restaurant meals, and restaurant owners take their share of that cash to buy new cars, the economic gains add up.
For now, though, we're still looking at the destruction and the store sales and business services that didn't happen. "Of course, the script is still being written," Zandi said in a teleconference last week, as hundreds of thousands remained in the dark.
The financial script will unfold for months, in obvious and obscure ways. If anything, the effect will be slightly positive over time as homes, infrastructure and businesses emerge more efficient, more advanced — making them more productive.
The first place to look for benefits is the hard-hit construction industry. "I just had a couple of calls today from clients," A.J. Miller, co-owner of Odyssey Historic Construction in Clinton, said Friday afternoon. "We've just started to get the calls for the larger projects."
Odyssey did lose a week of work on scheduled projects, Miller said, but the firm was already down to its winter staffing of four employees. The roof of the building where the company is based was blown off, which will cost insurers, and perhaps the landlord, but could benefit Odyssey if it gets that repair job.
In total, the recovery work will probably mean a return of seasonally laid-off employees. "It's actually going to be a pretty good swing for us, coming into a very slow time … so it should be a nice little boom."
And it comes at the end of a weak year, he said.
Likewise, the auto industry saw sales for October fall because the critical final weekend of the month was lost, as would-be car buyers prepared for the storm. But as many as 500,000 vehicles were damaged or destroyed in Sandy, and insurance coverage is heavier than usual in the richest region of the nation.
That could mean a few billion dollars in auto sales alone, as some companies, including General Motors, are targeting post-Sandy purchases with special incentives.
The downside is that the money will come from insurance companies and personal savings — and the bump in spending could mean weakness later, as car buyers upgrade in 2012 instead of in 2013 or 2014.
That's the way almost all weather events shake out: The immediate hit to output and the loss of property are offset by the massive effort to clean up and rebuild. In addition to car dealerships and construction firms, hotels, restaurants and tree services gain, along with utility linemen, of course.
Electric ratepayers, taxpayers, insurance companies and people with uninsured losses are among the economic losers. But the insurance companies, flush with cash from a few good seasons of low catastrophe claims, are well-positioned to handle a payout, industry analysts said.
And now the haggling is happening: How do you value, for example, two lost days at the New York Stock Exchange?
The core of the debate is whether lost business, such as all those market trades that didn't happen, will be made up later. Even in travel and tourism, where lost trips could be lost forever, experts said that airlines and attractions will make up the difference later.
"The key takeaway is that much of the business lost is recouped at other times," said Jim Diffley, director of IHS Global Insight, in a webinar this week sponsored by the National Association for Business Economics.
And the flip side of that question is whether post-storm recovery work would have happened anyway, or whether it's "new money." It's the subject of heated debate just as experts argue over whether WWE would have done all that TV production work in Connecticut if it didn't get $37 million in state tax credits.
Even in construction, which most experts agree will gain from the post-storm spending, the picture is muddy, said Ken Simonson, chief economist at the Associated General Contractors of America and president of NABE, the business economists group.
"Not all the spending is new money, and to the extent that it's new money, it's going to wind up being taken out of other accounts," Simonson warned. Clients will have less to invest in the future, he added. "I don't see it as being much of a net positive."
It's his job to lower expectations, as chief economist for the construction industry's trade group. His industry will definitely benefit. But in the big picture, he's right.
Sandy will be tallied as No. 7, perhaps higher, among hurricanes in property damage as a percent of gross domestic product, according to Moody's — still far below Katrina and Andrew. Connecticut's damage is just a small piece of that. In lost output, for example, Fairfield County will amount to $600 million, Moody's estimates, in a region that has $65 billion in annual economic activity.
Ultimately, Sandy should be remembered for its disruption to people's lives. Economically, "it's not going to move the needle much one way or the other," said economist Don Klepper-Smith of DataCore Partners in New Haven.
"On the emotional needle, if you live in Staten Island, you've been through hell and back," he said. "Being originally from New York, I can tell you that this has been a cataclysmic event."
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