Hurricane Sandy to cost billions. Will the economy stand?
Hurricane Sandy is causing disruptions for companies, travelers and consumers. But for the overall economy, damage from Hurricane Sandy will likely be limited. Economists estimate the damage will cost between $10 billion and $20 billion.
Washington — Airlines canceled thousands of flights and stranded travelers. Insurers braced for damages of up to $5 billion. Retailers expected shrunken sales.
Hurricane Sandy is causing disruptions for companies, travelers and consumers. But for the overall economy, damage from the storm will likely be limited. And any economic growth lost to the storm in the short run will likely be restored once reconstruction begins, analysts say.
Preliminary estimates are that damage will range between $10 billion and $20 billion. That could top last year's Hurricane Irene, which cost $15.8 billion.
If so, Hurricane Sandy would be among the 10 most costly hurricanes in U.S. history. But it would still be far below the worst — Hurricane Katrina, which cost $108 billion and caused 1,200 deaths in 2005.
"Assuming the storm simply disrupts things for a few days and it doesn't do significant damage to infrastructure, then I don't think it will have a significant national impact," Mark Zandi, chief economist at Moody's Analytics, said Monday.
The economic impact could be more severe if the storm damages a port or a major manufacturing facility such as an oil refinery, Zandi noted.
Here's how the storm has begun to affect key areas of the economy:
— AIR TRAVEL:
Flights in the Northeast are all but stopped for at least two days. Airlines canceled more than 10,000 flights for Monday and Tuesday from Washington to Boston. The disruptions spread across the nation and overseas, stranding passengers from Hong Kong to Europe.
Airline cancellations have already surpassed those from Hurricane Irene last year and are on par with those from the snowstorm that pounded the East Coast early last year. The Airports Council International, a trade group, said that even if the storm damage turns out to be minor, it could be a week before operations are back to normal at major East Coast airports.
"It was supposed to be only a two-hour layover here in Atlanta, Ga., and now it's beginning to be a 28-hour layover until tomorrow, Danielson said.
The nation's big stores are expected to lose billions, and the losses could extend into the crucial holiday shopping season. Sales at department stores, clothing chains, jewelers and other sellers of non-essential goods are expected to suffer the most.
The industry is entering the holiday season, when many retailers collect up to 40 percent of annual revenue. Retailers, excluding restaurants, could lose at least $25 billion in sales this week, estimates Burt Flickinger III of retail consultancy Strategic Resource Group.
Even home improvement chains and grocers that will benefit from shoppers stocking up on emergency supplies before the hurricane and cleaning and repair items afterward could lose sales in the long run if overstretched consumers feel they must scale back.
"If you're spending $400 on a generator, that could hurt discretionary purchases," said Brian Sozzi, chief equities analyst at NBG Productions.
Flickinger now estimates that holiday sales in November and December will rise 2.1 percent over last year instead of the 3.2 percent he had originally predicted.
The storm is affecting small retailers as well as large ones.
At Angelo's Civita Farnese, a restaurant in Providence, R.I., the lunchtime crowd didn't surface as usual Monday. By 12:30 p.m., barely 10 customers were inside, and owner Bob Antignano had no hope of seeing the 200 to 250 he usually serves for lunch.
"It's a wasted day and it looks like tomorrow probably will be as well," Antignano said.
The loss of two days' revenue will wipe out his profit for the month. He would face losses if the restaurant lost power. He would have to close, and the food in his walk-in refrigerator and freezers could spoil.
The cost to insurers is expected to rival the insured damage from Hurricane Irene last year. Damage from Irene cost insurers roughly $5 billion, according to Sterne, Agee & Leach Research. Because the storm is hitting a highly populous region, with "one of the highest concentrations of wealth in the world," the damages are likely to run into the billions, say analysts at Morgan Stanley.
Hurricanes, like other disasters, can cause big losses but also big spikes in economic activity, once homes and buildings are rebuilt or repaired. And Americans may spend more before the storm when they stock up on extra food, water and batteries. Spending can also rise afterward as households restock.
The economy expanded at an annual rate of 2 percent in the July-September quarter. Zandi said he isn't changing his forecast for similar growth in the current October-December quarter of 1.9 percent.
Economic activity in October and November might slow if factory output declines and some workers are laid off temporarily and seek unemployment benefits. But the economy could strengthen in December as companies rebound.
CoreLogic, a private data provider, estimates that there are 284,000 homes worth about $88 billion in the hurricane's path.
The effect on auto sales may be minimal, some analysts say. Many people who planned to buy cars in the last few days of the month, when deals tend to peak, bought cars over the weekend instead, said Jesse Toprak, an analyst with car buying site TrueCar.com.
As a result, TrueCar isn't changing its forecast for October U.S. auto sales. Toprak predicts that more than 1.1 million vehicles will be sold in October, up 11.5 percent from the same month last year.
Forecasting firm LMC Automotive predicts that 1 percent to 3 percent of new-car sales, around 20,000 vehicles, will be lost because of the storm. But LMC analyst Jeff Schuster predicts that those sales will simply shift to November. So the storm might have little or no overall effect on sales.
Toprak also notes that dealers could gain sales once the storm is over if people need to replace damaged vehicles.
Energy outages and disruptions in major East Coast cities "may take a toll on (power) demand unlike anything we have seen before," Phil Flynn, a senior market analyst for Price Futures Group, wrote in a report.
Some of the biggest oil refineries in the Northeast were closed, and others were running at reduced capacity. As businesses closed and drivers staying home, demand for gasoline was expected to fall.
AP Business Writers Matthew Craft, Anne D'Innocenzio, Samantha Bomkamp and Joyce M Rosenberg in New York, Joshua Freed in Minneapolis and Tom Krisher and Dee-Ann Durbin in Detroit contributed to this report.