The Economic Impact of Hurricane Irene

Bennington Police Chief Paul Doucette looks at a collapsed bridge on Route 9 in Woodford, Vt., on Sunday, Aug. 28, 2011. (AP Photo)

Over the past few days, we held our breath in anticipation for Hurricane Irene to tear up the eastern seaboard. For some of us on the far-east edge of the storm, we’re sighing in relief. For some of our more inland friends (i.e. upstate New York and Vermont), we watch as new reports of unprecedented damage continue rolling in.

Meanwhile, we’ve been reading various reports on the economic impact of Hurricane Irene.

Originally, forecasters predicted that there would be $10 billion in economic damage due to the storm. Airlines alone took a hit before the storm even began: thousands of flights were cancelled in preparation for the storm, resulting in millions of dollars of losses for airline companies (which, in fairness, are not that different than the losses faced during snowstorms).

Sunday morning, I listened to a political official in New Jersey talk about how the storm depleted tourism on one of the state’s last busy weekends of the summer. While he spoke, a restaurant owner held a sign that said, “85 and sunny! Welcome back!” – urging tourists to come back to the Jersey Shore despite the damage in Irene’s aftermath.

Fortunately, forecasters are now saying Irene did not have as much of an impact as originally predicted. (As validation for this, the U.S. stock market surged Monday, with the Dow up 254 points.) Estimates of economic damage currently hover around $7 billion. Much of that economic impact is a result of New York City being entirely shut down; Mayor Bloomberg opted for the safest route and told residents to stay home. The nation’s largest subway system shrieked to a halt, resulting in the closure of many restaurants and entertainment destinations.

Franklin Nutter, President of the Reinsurance Association of America, explains that while the damages were indeed high, over 40% of the damages were insured, and the overall damages pale in comparison to other storms. He states that while $7 billion is “a significant amount of money…it is not a major event for the insurance industry. To put it in context, the tornadoes in Joplin, Mo., were probably $3 billion [in insurance claims]. The earthquake in Japan was probably a $30 billion event.” The overall economic impact of Hurricane Katrina, whose 6^th anniversary is today, insured and uninsured losses are estimated to have been around $133 billion.

But as Peter Morici, former Chief Economist at the U.S. International Trade Commission explains, the $7 billion estimates for Hurricane Irene don’t include the 1-2 days of economic activity losses; which if calculated over a week for 25% of the economy send total economic damage to $25-30 billion.

The people of Windham, NY can certainly understand. Just this morning, a CBS Morning News reporter walked through their quaint town, which sits about 145 miles north of New York City. Here, rapid flood waters have severely damaged, if not destroyed at least 12 of businesses along Main Street. Most of these business owners do not have flood insurance and their businesses have been devastated.

If there is any ray of sunshine resulting from the otherwise rainy, powerful storm, it’s that efforts to rebuild after Irene will result in some economic regeneration. Millions of people remain without power, so utility workers are putting in many extra hours and reaping overtime pay as a result. Construction workers will be needed to rebuild homes. Engineers will be required to design new roads and bridges washed away with Irene’s floods.

Some economists estimate that private-sector economic input as a result of the cleanup could also be around $7 billion. The idea is that when people rebuild, they often invest more money and build bigger than they had before.

Indeed, a correspondent on Fox 25 evening news stated last night that the United States’ current 1-2% seasonally-adjusted growth rate could increase to 2-3% as a result of this storm.

But House Majority Leader, Eric Cantor (R-VA) warns that federal funds will not be as readily available as in years past. Previously, when federal funds were issued to help homeowners rebuild, the cost was added to the federal deficit. Given the turmoil around the debt ceiling this past year, Cantor says the money will not add to the deficit; instead, the money will be taken directly from other programs. So many of the goods and services we rely on in other sectors will face a hit—thereby limiting the economic impact of rebuilding efforts.

It is truly yet to be determined what the final impact of Irene will be. If crops have been destroyed, food prices could skyrocket. The price of fuel may also rise. The consumer spending report—expected today to show an increase in consumer spending for the month of July—may be reversed next month as folks reign in spending while they rebuild.

In the grand scheme of things, we should not allow monetary losses to overshadow the loss of human life (40 people as of this morning) and the heartache caused by families who have lost everything. Still, as a society, we will come together and rebuild.

Join the discussion and tell us – what do you think Irene’s biggest impact will be on the economy? Is it possible for the estimated $7 billion in private sector economic output to offset the $7 billion in economic losses caused by Irene—or do these figures seem overestimated?

Small business owners: do you have flood insurance? Did you lose power and shut down for the weekend? What impact did the storm have on your business?

BY Amanda Maher on August 30th, 2011

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