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Economic toll of Sandy: Damage second only to Katrina?

Superstorm Sandy cut a path of destruction that could near $50 billion. Economic activity in New York City dipped 20 percent in storm's wake, but economists do not expect that Sandy will have a major impact on the nation's economic growth.

By Staff writer / November 1, 2012

Joseph Leader, Metropolitan Transportation Authority vice president and chief maintenance officer, shines a flashlight on standing water inside the South Ferry 1 train station in New York City on Wednesday, in the wake of superstorm Sandy. The floodwaters that poured into New York's deepest subway tunnels may pose the biggest obstacle to the city's recovery from the worst natural disaster in the transit system's 108-year history.

Craig Ruttle/AP

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Economic impacts of superstorm Sandy are just starting to come into view, but what's clear is that they're big.

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The nation's economic capital, New York City, has been hobbled by electricity outages, floods, and damage to its massive subway system. From flooded Hoboken to wave-battered Atlantic City, the storm caused extensive structural damage in cities and towns along the coast of New Jersey. And across a multistate region, consumer activity was sidelined at least briefly by Sandy's winds, rains, and snows.
 
One firm that specializes in storm damage forecasting, EQECAT, raised its Sandy estimate to total economic damage of $30 billion to $50 billion, with about one-third of that being insured losses claimed by homeowners and businesses. For reference, $50 billion is about 0.3 percent of one year's gross domestic product (GDP) for the US.

If accurate, that estimate would put Sandy behind hurricane Katrina in 2005, but ahead of other major US hurricanes.

The investment firm Morgan Stanley cites data from the National Climatic Data Center, which puts the economic damage of Katrina at $146 billion, when measured in today's dollars. Pending a final tally from Sandy, the second-ranking hurricane since 1980 is Andrew, which in 1992 did damage of $44 billion in today's dollars.

Wherever Sandy ends up, it will be high on the list of major storms. Yet it's tricky for economists to predict how Sandy will affect US economic growth.

The damage is large. The impact on families and businesses in the hardest-hit areas is large. But by itself, that doesn't mean Sandy will automatically put a big dent in GDP for the current quarter. To some extent, the losses from the storm are offset by a flood of a different kind – the inflows of disaster aid, insurance claims, and "catch-up" spending by consumers who had to delay purchases due to the storm.

"The disruption to business activity ... probably occurred early enough in the quarter to be offset by rebuilding activity and replacement demand for things like automobiles," writes David Greenlaw, a Morgan Stanley economist in New York. So far, Sandy isn't prompting the firm to change its GDP forecast.

"Most estimates suggest that Katrina subtracted between 0.5 and 1.0 percentage points from GDP growth during the second half of 2005 with a corresponding boost to activity in 2006," he says in his analysis. Striking right at the flood-vulnerable city of New Orleans and near major oil refineries, Katrina affected US energy production for months and triggered some 200,000 job losses.

Mr. Greenlaw says he doesn't expect "significant permanent job loss" or energy impacts in the wake of Sandy. "On the other hand, it seems like Sandy caused significantly more damage to transportation infrastructure than Katrina."

And in terms of damage to residential properties in the affected region, Sandy's scale may be comparable to the 300,000 homes damaged or destroyed by Katrina, the Morgan Stanley economist says.

Other firms are also churning out preliminary assessments.

The forecasting firm IHS Global Insight estimates that Sandy could reduce GDP growth by 0.6 percentage points in the October-December quarter, the Associated Press reports.

That's at the high end among estimates, while some other forecasters see Sandy's effect on GDP as potentially minimal.

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