Earthquake and Bitter Cold Take Toll on Nation's Economy
But in the longer term, new jobs and spending may make up for lost income
WASHINGTON — THE wealth crumbled by last week's earthquake in Los Angeles - from cracked single-family houses to shattered store inventories to collapsed freeway overpasses - is estimated by California officials to add up to as much as $30 billion.
But the recent history of similar natural disasters suggests that job creation and spending will get a lift from the jarring the region took.
Already, thousands of workers in hard hats around Los Angeles are knocking down unsafe structures and cleaning up debris. (Seismic safety, Page 7.)
The new jobs and new spending are not likely to make up for economic damage in the region any time soon. But, then, neither is the earthquake likely to slow down the long-awaited economic recovery in the Los Angeles area - much less the nation.
The freeze that brought much of the eastern United States to a standstill last week had a much broader economic impact, but a much more evenhanded and temporary one. Both events are expected by most economists to wash out of the economic-growth measurements by the end of the first quarter.
The lost income due to the freeze will mostly be made up in a few weeks. But as the economy of Greater L.A. hums along, it will have a lot of ground to make up. The wealth lost to the temblor amounts to upwards of 1 percent of the national economic output for this quarter.
The most general result of the quake is the disruption to major freeways, which will last for many months. But most of the impact is specific to households and businesses that lost property or were put out of operation.
After Hurricane Andrew struck the southern suburbs of Miami in August 1992, some $19 billion in outside money flowed into the region - the vast majority from private insurance firms. About 90 percent of area enterprises were insured for hurricane damage.
But most households and businesses in the L.A. area are not insured against earthquakes.
For many families, especially those living in the Northridge area where damage was concentrated, that means savings plans have been set back months or years, notes Tom Lieser, an economist at the University of California at Los Angeles's Business Forecasting Project. The businesses that will suffer most are those that were struggling already, ones that cannot afford to replace inventory to reopen but can't afford to stay closed either.
Damage estimates from the quake are still crude. Economists monitoring them, such as Mr. Lieser and Manus McHugh of the WEFA Group in Bala Cynwyd, Penn., figure that losses will easily reach $20 billion, and they judge the $30 billion figure as a reasonable guess at the high end.
Structural damage to highways, buildings, power transformers, gas lines, etc., appears to approach $15 billion, Mr. McHugh says. The rest of the losses come from lost wages, productivity, and investment.
McHugh estimates that, based on available information on traffic flows and housing destruction, 1 person in 50 in the Los Angeles area was unable to get to work and earn his or her wages early last week. That number was halved each succeeding day as people resettled and made adjustments. Altogether, he totals lost wages and productivity at about $105 million last week, in a local economy that pays out $1.4 billion in payroll every day.
``In the macro sense, that's a blip,'' McHugh says.
The immediate effect of the quake is to slow the local economy down, as stores close and people struggle to clean up living quarters and find new routes to work. But, by the quarter's end, the heightened economic activity of replacing and rebuilding should show an increase. Although quake recovery will be in full swing by the second quarter, its economic effect will probably be subsumed in the business cycle.
``A year from now, the quake will still be a major story,'' Lieser says. ``But the business cycle may be the more important factor.''
The rebuilding of south Florida is still in progress more than a year after Andrew hit. Construction employment is up 20 percent to 30 percent, and retail sales are enjoying a hurricane-related boomlet likely to last into 1995, says David Lenze of the University of Florida's Bureau of Economic and Business Research.
But 50,000 people used the hurricane and insurance payments that followed as a point of departure and moved out of Dade County, he adds.
Angelenos, meanwhile, have suffered major riots, brush fires, floods, and now an earthquake in a quick succession of trials unmatched over the previous 100 years - all during a deep recession. The perpetual population growth of the region was already slowing before the quake and was forecast to reach zero next year.
Part of the economy's recovery lies in sustaining the spirit and confidence of the region, economists say.