10/31/2012 6:45 PM ET|
Will Sandy blow down the economy?
Damages and lost business are estimated at $50 billion. But by rattling consumers and Wall Street, the storm's real toll could be much greater.
Damage from Hurricane Sandy in the Rockaway neighborhood of Queens, New York.
All at once, the plans of men were made to look meek as one of the most powerful Atlantic storms on record roared ashore Monday night. Hurricane Sandy knocked out power to lower Manhattan, flooded the financial district and caused chaos in our nation's largest city. The superstorm cut power to about 8.1 million customers.
One early estimate put overall damage and lost business at roughly $50 billion; that could grow once those miles of subway tunnels are drained of seawater and an army of insurance adjusters puts boots on the ground.
But Sandy will hit the economy in much deeper ways. No, we're not anywhere near the impact from the earthquake/tsunami/nuclear meltdown that hit Japan last year. But given the fragile state of the economy, Sandy could pull growth of the gross domestic product down from 2% toward 0% in the months ahead. Over six months, that could be a loss of output of roughly $140 billion
Combined with other negatives, from the looming "fiscal cliff" in Washington to the ongoing European debt crisis, this will only make life tougher for investors. Here's where trouble will arise, as well as a few ideas on how to protect yourself:
The direct costs
I see three big ways Sandy will affect growth.
The first is through the economic losses that come as damaged and flooded cars are scrapped, furniture is thrown out and subway systems repaired. Initial estimates from Eqecat put this drag at $20 billion -- far from the $280 billion losses incurred in the triple-threat Tohoku disaster in Japan last year. Still, if these initial estimates are correct, Sandy will be the fifth-worst hurricane on record, accounting for inflation, according to the Insurance Information Institute.
In the context of other recent disasters, Sandy is roughly equivalent on this measure to the Russian wildfires caused by the heat wave of 2010, which destroyed nearly 3,000 buildings. (The human toll was much higher in Russia, though, with more than 50,000 people killed).
Both Japan and Russia took hits to their GDP growth rates a result of those disasters. Russia's growth dropped from 1.7% in the second quarter of 2010 to 0.3% during the disaster, before bouncing to 2.3% in early 2011. In Japan, the growth rate plunged to negative 2% before rebounding late last year as government rebuilding efforts revved up.
The consumer impact
The more important consideration, and the one that I think will be have the larger impact on the U.S. economy, is Sandy's influence on consumer sentiment heading into the critical holiday shopping season.
Already, shoppers have been propping up the economy up as businesses pull back. Manufacturing activity has stalled. New orders are down. CEOs have cut back on plans to invest and hire. Inventories are down.
The regional Federal Reserve manufacturing activity reports make for depressing reading. The latest out of the Dallas Fed shows a nasty combination of rising materials costs and plunging new orders.
Yet in the latest report, the Conference Board's Consumer Confidence Index has jumped back above the 70 level (1985=100) for only the third time since the recession ended. More consumers are making plans to buy things like cars, appliances and televisions.
Credit Suisse economists note this is a big reversal from the early stages of the recovery as GDP categories like housing and consumer durables spending have "punched above their weight in the recent quarter" while "business investments and exports have slackened."
To put it in numbers, consumer spending jumped 2% and residential investment surged 14%, while business investment dropped 1.3% and exports fell 1.6%,
The key in all this is that households remain unconcerned about the fiscal cliff -- the package of tax hikes and spending cuts worth some 5% of GDP set to hit on Jan. 1 unless Washington acts. CEOs are acutely aware of it. CEOs tend to have a better read on the situation during major economic turning points. They were nervous in the middle of 2007 before the recession and financial crisis struck, and they were confident in mid-2009 as the recovery was starting. Households were confident in 2007 and nervous in 2009.
I've been expecting consumer confidence to come down later this year as the media starts covering the fiscal cliff in earnest in November and December -- after the election. Sandy's impact could pull it down even sooner, dragging on GDP growth in the fourth quarter.
Again, the Japanese experience is illustrative. Consumer confidence dropped hard from 40.6 during the March 2011 disaster to a low of 33.4 two months later as people watched the mismanagement of the Fukushima reactor meltdown and the slow pace of rebuilding. Consumer spending cooled, as did retail sales. On a year-over-year basis, sales dropped 8.3% in April of 2011 and an additional 4.8% that May.
A similar, if less severe, drop is likely as America's most populous city recovers from record flooding, fires and power outages. Experiences like these lay bare just how fragile modern society is and how quickly things can devolve. Since the economy lives and dies by decisions made on the margins, it's hard to see how this won't have a negative impact as people decide it's best to save a little more rather than splurge.
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Electing this right wing dope will send our country back into a depression. Repuke dunces were warned about the lyin Mexican Moroon Moron tax evading draft dodger during the primaries.
All pathetic, psychotic, braindead right wing radical cracked teanut dopes should listen to your leaders. They warned you about the Mexican Mormon Moron tax evading draft dodger during the primaries when they were able to tell he truth about this moron.
Lyin Willardo, the Mexican Mormon Moron tax evader, bankrupter, draft dodger, job outsourcer and Etch A Sketch Champion may have vision of going back home to Mexico.
All braindead pathetic right wing radical cracked teanuts should listen to your leaders.
Rick the Dick Santarium has brainwashed his followers, the evangelicals and the gay rapist, pedophile catholic priests that lyin' Willardo is a member of an evil cult and is the anti-christ. He also told them that lyin Willardo is the worst person in history to ever run for the presidency, can't be trusted and will destroy our country. Groper Nutquist, the boss of the right wing cracked teanuts and Nut Gingerhead, the criminal lobbyist, totally agreed with the last three assessments.
So most of the evangelical sheep will probably stay home on election day or some may even vote for Obama. They are totally scared to death of lyin Willardo, the Mexican Mormon Moron tax evader, bankrupter, job outsourcer, draft dodger and Etch A Sketch champion.
If this repuke draft dodger ever became president, and war broke out in the middle east, he will be putting his dog on the top of his car and fleeing to his birthplace in Tijuana and hide in one of his 4 grandmammy's (pappy's side only) outhouses.
This is what ruined our economy long before the storm.
Time to rise up and vote out the radical right wing cracked teapots and their oil, insurance and defense contractor owners. At least the people saw the light and realized how idiotic "Juiced Up" Sharron Angle and The Flying Witch Christine O'Donnell, Joe Smith from Alaska and several others were and did not vote them in. Hopefully, people saw what the real helicopter gunship pilot Sarah Palin is and will never allow her to hold any public office. The idiots who voted for these nutcases did not learn from Bush Bin Lyin and his criminal gang what the republicans are really about. They outed two CIA agents, who wanted to tell the truth that there were no weapons of mass destruction in Iraq. Bush Bin Lyin's bosses the oil companies and defense contractors got wealthy as our society was being brought down. These guys destroyed Iraq and then had to rebuild it using tax payer dollars. At least they got Delay. Scooter Libby was the fall guy for the CIA agents outing. Don't forget the criminal gang's trickle down economics where the money trickled down into their bosses pockets instead of creating jobs. That is why we were losing over 700,000 jobs a month before Obama took over.
This is what will ruin our economy.
Everything lyin Willardo feeds his braindead followers is a myth. I am sure he would be doing better if he told these repuke dopes that he would create 50 million jobs in the next 4 years. They don't need to be told how.
Clueless Lyin Willardo should not even be running for president. But for a lyin moron, talk is cheap. This clueless moron has no idea how to fix anything. This criminal repuke bankupts companies and loses jobs. What a joke. The nuts that follow him actually believe that he is going to create 12 million new jobs and these dopes believe him. He does not have to tell them how, that does not matter.
Clueless Lyin Willardo is known as the slapped axx Mexican Mormon Moron for good reason. This complete dunce made himself look even more ignorant than he already is by stating in a campaign clip that if he ever overpaid his taxes, he does not deserve to be your president. Well this repuke dunce overpaid his 2011 taxes by $3,000 to make it look like he was paying a higher tax rate-which he can recover after the election. He has up to 3 years to refile an amended return. Only a pathetic, psychotic, braindead radical right wing cracked teanut dope will vote for him.
The images of all the aftermath coming out now are heartbreaking. The image of the woman who was being embraced by Governor Christy that lost everything really drove home how we need to reach out to those people with monies, shelter, food, clothing, medical needs, giving blood, volunteering.....lets say everything you can think of.
The estimates are saying 50 Billion. I think it will double ! All the tunnels still need to be cleared and 660 miles of subway system need to be inspected. I can't even count the number of homes knocked off their foundations or out right washed away, covered with sand in every neighborhood were seeing.
It will probably rank up there right next to Katrina in loses.
How many appliances will be purchased?
How much new furniture will be purchased?
How many construction jobs will be created to rebuild houses, bridges, roads?
How much will be spent to repair utilities?
The $50 billion looks to me like one big economic stimulus package from the insurance industry.
This article shows what is fundamentally wrong with our news media. It thinks that the U.S. economy revolves around Wall Street, and cannot function without the stock market and the opinions of economic forecasters - most of who create no real value but do waste a lot of resources. Yeah the local economies in the storm ravaged areas will suffer, but then it will rebuild. Meanwhile, the rest of the country isn't going to shut down waiting on it.
Good thing I only read this economic bs for entertainment. If MSN had any real influence in the world then I'd be really upset. But they’re just silly, so just treat them as another sitcom.
Think the economy being in the ditch is more oblamos fault, than Sandy's fault...
After three years of so called, summer of recovery failures...
What happened to his Laser Beam for Jobs project..? lol
You don't really explain how the disaster will hurt the economy directly, except to say it may hurt consumer confidence, which i highly doubt it will hurt it for long even if it does. and what of all the work for currently underutilized construction industry that will be created, and the trickle down affect, to rebuild ravaged parts of new york, jersey, connecticut, and n. carolina. you left that out... ???
Ruin the economy? Of course not. The rebuilding process will create jobs. We will all be paying higher insurance premiums for the money insurers will pay out. In trade we get:
Unlike government green projects and stimulus money that was wasted, this private sector rebuilding process will create real growth and job creation.
Capitalism, while not perfect can work , even in the face of disaster.
Yes, we built that. And we will rebuild it, even better.
Barack Obama exists only as the sock puppet of his handlers, of the people who have maneuvered and manufactured this pathetic individual’s life.
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