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.

By Charley Blaine Nov 20, 2012 2:51PM
If you live along the New Jersey coastline and see a front-end loader emptying debris from Hurricane Sandy into a dump truck, think of it as economic growth.

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%. Credit: © Allison Joyce/Getty Images

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.
Tags: Fgmoil
26Comments
Nov 21, 2012 11:12AM
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ReTog

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.

Nov 21, 2012 12:18AM
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Understood,

It wasn't gonna be a home run anyway, just a base hit...

((gubment contracts))

Nov 20, 2012 10:39PM
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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.?

Nov 20, 2012 8:38PM
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TOG,

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.

Nov 20, 2012 7:17PM
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It even recovered from a negative -100 pt. swoon...CGT did that...
Nov 20, 2012 7:06PM
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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.

Nov 20, 2012 6:54PM
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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........

 

Nov 20, 2012 6:04PM
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Hey,what happened today ???Yesterday the market was booming,world fixed,everyone had jobs,no more tears,blah,blah,blah,blah.The headline was,DOW surges 207 on HOPES, - get that - on HOPES! Not on fact or strong data,just HOPES.Then today BBtheFED clears his throat saying what everybody already knows and all HOPE is gone again.Mean while on the REALITY home front,gas went up 13 cents over night around here.FOR WHAT ???
Nov 20, 2012 6:04PM
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Using the author's logic (and those of Wall Street economists) the GDP can be easily manipulated...periodically let's blow up neighborhoods, maybe take out a bridge or a dam along the way and we can grow the economy whenever we want to. 

Why is Bernanke printing so much money? A better stimulus can be provided by bulldozing old suburbs and replacing them with brand new domiciles. That's the way some bozo economists seem to think. The more we destroy and replace, the better it is for the economy. Give me a break!! 
Nov 20, 2012 5:40PM
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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.

Nov 20, 2012 5:17PM
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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?

Nov 20, 2012 4:56PM
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But Obama will take the credit................
Nov 20, 2012 4:43PM
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it is utter and complete nonsense to think that repairing storm damage provides a boost to the economy. Common sense will suggest that this can never be the case. A simple example can demonstrate why this widely held belief is patently false:

Someone throws a brick threw my living room window, Cost to replace is $500. The window replacement business gets $500 of additional business - good for that business. 

My homeowners insurance plan has a $2500 deductible so I must pay for the window replacement cost out of my pocket - bad for me. I have $500 less that is available to spend elsewhere. 

If the damage is covered by insurance the outcome is the same - the insurance company is out $500 tat they could otherwise spend on dividends to shareholders, 

The gains to the economy due to repairing damage due to hurricane Sandy will prove to be illusory. It's likely insurance premiums will go up in order to recoup the additional costs incurred. Uninsured costs will take a bite out of property owners. Some businesses will benefit, others will suffer. Net benefit will likely be zero, and may in fact be a negative impact to the overall economy. 

Nov 20, 2012 4:36PM
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But there still should be temporary work for them, unless they just want to sit on their azzes.
Nov 20, 2012 4:35PM
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Yeah...The people working at jobs in the areas, is a different story...I am remiss.
Nov 20, 2012 4:33PM
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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..

Nov 20, 2012 4:30PM
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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.

Nov 20, 2012 4:28PM
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Do you think President Obama can take credit for creating the storm?  He can say "I'm finally putting people back to work!"
Nov 20, 2012 4:25PM
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This article is a disgusting piece of Keynesian's on crack propaganda.  I'm f'ing sick of MSN and the rest of the shill corporate owned media trying to spin every piece of bad news as stimulative.  Complete idiots!  If disaster was so great for economies, Japan would be a powerhouse after the quake and tsunami's.  Do us a favor Charlie Blaine, go find a disaster and put yourself in it...the world will be a better place!
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Sandy will help the economy in the same way taking out a big loan to remodel your home helps your economy, it always needs to get paid back ...... with interest, someday.
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