Wall Street stock markets and Atlantic City casinos shut down, hundreds of flights were canceled, and numerous companies postponed earnings announcements. The short-term economic impacts of Hurricane Sandy were already evident by Monday evening, but the ultimate bill for the struggling nation’s economy could take a while to add up.
The destruction expected from Hurricane Sandy, targeting the country’s most densely populated and developed region, could make it the most expensive storm to hit the country since Hurricane Katrina, experts say.
The potential havoc was so bad the New York Stock Exchange and other New York-based markets closed Monday for the first time since the days after the terrorist attacks of Sept. 11, 2001. The Washington-based U.S. Chamber of Commerce also was closed, and most businesses in the region are expected to be shuttered for at least another day as the slow-moving storm passes by.
While the one-time economic losses are expected to be higher from Sandy than other recent storms, experts say it shouldn’t have a lasting effect on the long-term health of the economy, as long as the crucial economic infrastructure survives relatively intact.
“Of course, if the storm knocks out major infrastructure like refineries, cell towers, trains, seaports and airports, then the economic damage will be more severe and difficult to recover from,” Moody's Chief Economist Mark Zandi said.
Damage estimates range as high as $100 billion. Moody's predicts the gross domestic product loss from closed businesses and fewer shoppers could be about $10 billion a day between Washington and New York alone.
According to studies by Yale economist William D. Nordhaus, the average cost in property damage of a year’s worth of hurricanes in the past 80 years for the U.S. economy is below a tenth of a percentage point of GDP — or just less than $10 billion in today’s dollars. Aside from Katrina and its $100 billion tab, the nine most devastating hurricanes in U.S. history cost from $9 billion to $30 billion.
Hurricane Irene is the most recent storm of comparison. It produced an estimated $15 billion to $20 billion in damages.
According to Moody's, Irene accounted for $11.3 billion in total losses and $6.6 billion in total aid.
But Hurricane Sandy could be even worse. Some experts say the damage could range as high as $100 billion, with most estimates settling between $35 billion and $45 billion.
But businesses could also see a storm-related boom in Sandy’s wake of at least $15 billion to $20 billion in new reconstruction and rehabilitation spending, which could turn into an economic benefit for contractors in the struggling construction industry of as much as $36 billion.
“Assuming the storm creates havoc for no more than a few days, there should be little impact on fourth-quarter GDP,” he said. “Whatever economic output is lost in the next few days will be made up in the subsequent weeks.”
He said the monthly numbers for retail sales, vehicle sales and industrial production may notice a slight drop, but they should bounce back by the end of the year.
By contrast, Hurricane Katrina in 2005 derailed New Orleans’ economy and battered broad swaths of the Atlantic coast. It took years to rebuild with damage totaling more than $100 billion.
As the leading edge of the storm advanced on the mid-Atlantic states, the usually resilient New York Stock Exchange and Nasdaq shut down, and Goldman Sachs and other Wall Street banks activated emergency plans.
“My bias is always to keep the markets open, but this was a pretty easy decision,” Duncan Niederauer, NYSE Euronext CEO, told CNBC on Monday. “What I underestimated was how much people would have to staff up if we were operating electronically.”
Furthermore, Mr. Niederauer said it’s “hard to imagine” that the NYSE would open back up Tuesday.
The NYSE closed for four days in September 2001, but if the NYSE remains closed Tuesday, which at this point is likely, it would be the first two-day shutdown for the exchange due to weather since 1888.