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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.

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Mark Zandi at Moody's Analytics wrote Wednesday that, for all its grim statistics, the storm may not push fourth-quarter GDP up or down.  

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Economic output in the region between Greater New York City and Washington totals about 15 percent of America's GDP, Mr. Zandi figures. He then reckons that the storm may have caused about two days of lost output in the region, plus perhaps an equal amount ($20 billion) of property damage, much of which will be repaired by the end of the quarter.

"Fortunately, major facilities such as sea and airports, rail and road systems, oil refineries and cell towers appear not to have been significantly damaged," Zandi said.

Economist Mark Vitner of Wells Fargo estimates that GDP "will likely be reduced by 0.1 to 0.3 percentage points in the fourth quarter." He predicts a similar sized gain in the first quarter of 2013, thanks to Sandy-related rebuilding efforts.
 
Mild estimates of GDP impact don't mean the storm is harmless for the economy. The money spent on repairing homes, rescuing flood-stranded people, and rerouting airplanes represents dollars that could have otherwise been spent in other ways.

In his report, Mr. Vitner warns that Sandy may result in losses of uninsured property that are "on the high side relative to Hurricane Irene and other storms," because a sizable share of water damage came in areas where owners don't typically carry flood insurance.

In many ways, viewing the storm's impact through the lens of GDP is misleading. Loss of property has a real impact on people's financial well being, yet those losses don't directly subtract from GDP. (Homes, furniture, and the like were part of GDP when they were first produced.) But cleanup and repair spending does add to GDP.

Still, measuring Sandy's effect on US growth is important, because the economy was in a vulnerable position before the storm struck. Its current pace of 2 percent annualized growth is weak, considering the high number of unemployed Americans and what economists see as looming "down side risks." Those risks include the expiration of major tax cuts at year's end, which are poised to affect consumers if Congress doesn't act, and potential challenges in the global economy as European nations grapple with debt burdens.

As October rolled into November, much of the East Coast was getting back to a semblance of normalcy.

To give just one indicator: Airline travel in the region had performed a u-turn from shutdown toward full restoration of service. On Nov. 1, even flood-saturated LaGuardia Airiport was welcoming planes back on its runways.

But the storm's ongoing effects are equally visible.

New York City Comptroller John Liu told Reuters that in the days immediately following the storm, "economic activity is down to about 20 percent of usual. It's a huge drop."

Still, with each day the "Sandy effect" should diminish, in a city that typically sees $2 billion in economic activity per day. "Based on past history, most of that economic activity is not completely lost, it's just postponed," Mr. Liu said. "We don't believe the permanently lost economic activity will exceed $1 billion."

Households and businesses that suffered uninsured storm damage to their property may get financial help from the Federal Emergency Management Agency. And Fannie Mae and Freddie Mac have offered a 90-day forbearance program, so affected families may get to reduce or postpone payments on mortgages that the firms own or guarantee.

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