Why Sandy is starting to boost the economy
The big storm stopped life as we know it for days and weeks along the East Coast. But the spending that's just beginning will give the economy a boost over the next year -- at least.
The recovery from Sandy is already starting to stimulate the local and national economies, although many of the effects won't be seen until next year and perhaps longer.
Sandy slammed into the Atlantic Seaboard on Oct. 29, destroying homes and businesses, cutting power to millions for days and even weeks and even forcing financial markets to halt trading for two days. At least 113 people died.
Sandy's immediate effect will be to cut U.S. economic growth in the fourth quarter by a net 0.3%, says Greg Daco, senior economist at IHS Global Insight. The damage and business shutdowns that hurt sales and wages, along with the impacts from power outages and flooding, will cut growth by 0.6%.
But the spending now underway to remove debris, fix flooded subways and replace roofs, furniture and other property damaged by the storm will cut the overall effect by 0.3%.
The effects of the recovery will be felt most in the first and second quarters of next year as home and business repair activities accelerate. (Or as houses are torn down and replaced.) The timing and intensity of the reconstruction efforts will depend on weather, Daco says. A harsh winter will obviously slow the work. But permitting and inspections will slow things as well.
Daco may be one of the more optimistic observers about Sandy's impact. Morgan Stanley economist Vincent Reinhart cut the investment house's fourth-quarter growth estimate to 0.6% from 0.8%. Jobless claims jumped, and manufacturing surveys by the Federal Reserve Banks of New York and Philadelphia show manufacturing fell after the storm.
Daco warns -- as do many economists -- that economic reports coming out in the next few months may miss some of the effects of the Sandy recovery. The data collection methodologies aren't granular enough to separate out recovery-related spending.
But the recovery has started. Home Depot (HD) and Lowe's (LOW) benefitted from spending as people prepared for Sandy. The companies expect to see more spending for recovery repairs in the months ahead. Lowe's shares have jumped 10% since the Friday before the storm. Home Depot is up a bit more than 5%. The Standard & Poor's 500 Index ($INX) is down 2.4%.
Many auto dealers have gotten new business from customers needing to replace vehicles that were totaled by the storm. Daco recently went out to help a friend buy a new car after his was damaged. The showroom was packed with customers also needing to replace cars.
Some effects of the recovery may not be seen for a while. Hurricane Katrina, for example, badly damaged the infrastructure of platforms and pipelines that bring oil and natural gas ashore from wells in the Gulf of Mexico. It took years to bring that infrastructure all the way back, according to economist James Hamilton of the University of California, San Diego.
If your home was damaged and you expect to shell out an extra $20,000 above your claim settlement to renovate your kitchen, you may view your spending as simply protecting what you have. Fair enough. But gross domestic product is measured by what's spent. Why the money is spent is a different question.
Having worked in the insurance restoration business I will give you an example of the "broken window fallacy".
There was a fire at a commercial plaza and multiple stores had major damage. Contractors, material suppliers, heavy equipment operators recieved extra work because of it. The employees of the stores that were damaged were out of work until it was all fixed.
el che obama was spot on.
my question is while the hard hit spots are certainly seriously dammaged, that storm was HUGE and there could be 10 times that amount in simple damage. places where no one is out of work but home depot sales increase from the buying of new material for home and yard repairs.
i wonder what the ratio of serious damage is to simple damage. 10to 1? 100 to 1?
Having worked in the insurance restoration business I can say Prince has some points.
If you look at the loss on a house by house basis then yes this is a stimulus, but if you look at it regionally it may not be. Individuals with insurance will get homes that will be better off then they were before the storm, damaged contents will be replaced with new stuff, basements/roofs rebuilt but it comes with price. Insurance premiums will go up, coverage for certain types of events (maybe flood, sewer backup or hurricane) will either cost more to insure against or in some areas no longer be covered. Extra insurance premiums is money that could be spent on other things going back to refill the coffers of insurers, and lets be honest the insurers might take a loss for the year on this storm but over the long run they will make it back otherwise they wouldn't be in business.
Also, damages to infastructure is a direct cost to local/state government. The money will come from tax payers, or borrowed.
BTW.....Today was a great day in the Markets....A Flat day after a 200+pt gain. C'mon what do you want ???
And some money was made today also....As long as you weren't in HP..BBY or Cliffs NR
Good stocks, Good Companies, Good money....
Who knows, might change tomorrow ?? Don't Worry-Be Happy.
el che.........Remember a lot of those people had money and insurance...
A little different story then Katrina, which is "still pitiful" like the little kid said.
And then Haiti, with 100s of thousands still in tents...With their hands sticking through the flap..
Prince of....D Utter nonsense, huh, uh...Are you an Investor ??
And if you are, GOOD for you, but you probably don't own any Home Improvement Stocks...?
Or maybe any Waste Haulers either...? Along with many other Companies.
CHARLEY WAS CORRECT earlier and it's still correct..
It was a MONSTER STORM, like Steve pointed out...
And it is called CASH FLOW....And there will be plenty of it...Into many hands..
Yes some Insurance Companies are going to get hit...
And overall many Home owners may be biting the bullet some, maybe the worst??
But still....THE STORM Sandy...will be a "stimulus and money mover" all by herself...
You are not looking at the Big Picture, buddy........
I'm hearing that JCI is about to have a pretty good run up in the next few weeks.
They bought the automotive side of A123 battery at a fire sale price last month.
STRIC...yeah and Johnson's C has been a pretty good Company anyway...Didn't know about the A123 deal...Think they had some Foreign contracts left yet ?
And JCI is diversified enough to hold out longer...
A-One is a funny story, almost bought on IPO. Probably one of them I would have got, like others that don't always pan out..Last price I saw before de-listing(??) was .12 cents a share ??
Anyway...I have lost interest in Solar, Lithium Mining, and L-Battery companies, nothing has worked well for us in any of that/those fields.... Maybe a later time.?
I would say the economy change will be positive by area. If most of what was destroyed was old and run down to begin with and is replaced by the new and innovative the economy may get better in those areas. On the other hand, the economy may get worse in areas that were newer to begin with and had the opposite effects due to storm damage. The lack of actual business or not rebuilding businesses will make the economy worse in the long run.
It wasn't gonna be a home run anyway, just a base hit...
Copyright © 2013 Microsoft. All rights reserved.
The company is planning a 10-for-1 split, which will cut its share price dramatically.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.