Sandy cost may hit $50bn

2012-10-31 07:08

Washington – Superstorm Sandy will end up causing about $20 billion in property damages and $10 billion to $30 billion more in lost business, according to IHS Global Insight, a forecasting firm.

In the long run, the devastation the storm inflicted on New York City and other parts of the Northeast will barely nick the US economy. That’s the view of economists who say a slightly slower economy in coming weeks will likely be matched by reconstruction and repairs that will contribute to growth over time.

The short-term blow to the economy, though, could subtract about 0.6 percentage point from US economic growth in the October-December quarter, IHS says.

Retailers, airlines and home construction firms will likely lose some business.

The storm cut power to about 7 million homes, shut down 70% of East Coast oil refineries and inflicted worse-than-expected damage in the New York metro area. That area produces about 10% of US economic output.

New York City was all but closed off by car, train and air.

The superstorm overflowed the city’s waterfront, flooded the financial district and subway tunnels and cut power to hundreds of thousands. Power is expected to be fully restored in Manhattan and Brooklyn within four days.

The New York Stock Exchange will reopen for regular trading today after being shut down for two days.

There’s no evidence that the shutdown had any effect on the financial system or the economy. But Jim Paulsen, chief strategist at Wells Capital Management, said further delays might have rattled consumers and dampened their spending.

“It’s about confidence,” Paulsen said. “We’re watching these horrific images of the storm, and people are thinking whether they should ahead with that big purchase ... It doesn’t do any good to have another day with headlines saying the US can’t figure out how to open its stock exchange.”

Most homeowners who suffered losses from flooding won’t be able to benefit from their insurance policies. Standard homeowner policies don’t cover flood damage, and few homeowners have flood insurance.

But Fannie Mae and Freddie Mac said they will offer help to borrowers whose homes were damaged or destroyed, who live in designated disaster areas and whose loans the mortgage giants own or guarantee.

Among other steps, mortgage servicers will be allowed to reduce the monthly payments of affected homeowners or require no payments from them temporarily.

Across US industries, disruptions will slow the economy temporarily. Some restaurants and stores will draw fewer customers.
Factories may shut down or shorten shifts because of a drop in customer demand.

Some of those losses won’t be easily made up. And money spent to repair a home may lead to less spending elsewhere.

Shipping and business travel has been suspended in areas of the Northeast.

More than 15 000 flights across the Northeast and the world have been grounded, and it will take days for some passengers to get where they’re going.

Economists expect actual property damages from Hurricane Sandy to exceed those caused last year by Hurricane Irene, which cost $15.8 billion.

Irene had little effect on the nation’s growth.

Sandy will likely be among the 10 costliest hurricanes in US history.

It would still be far below the worst – Hurricane Katrina, which cost $108 billion in 2005.

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