General Points
We expect that some economic activity will be delayed several days or even weeks, but this is an intra-quarter story with no impact on Q4 GDP growth.The value of property destruction itself is not a negative in GDP. For example, if a factory with a market value of $1 billion is destroyed, GDP does not go down by $1 billion – although insurance company profits could!
The destruction of that factory does reduce GDP by the value of the goods that otherwise would be produced in that factory (per year), but this is usually much smaller than the property loss itself.
The rebuilding of the destroyed property is a positive in GDP, probably /spread over a year or two, but starting almost immediately.
Historical Comparison
Katrina is the grand-daddy of all US storms.- BEA: losses were about $110 billion ($90 bil private, $20 bil govt) in private and public capital; Insured losses of around $80 billion.
- CBO: Reduced GDP growth by about half a point in 3rd and 4th qtrs of 2005.
- Rebuilding was spread over several years.
- But the initial disruption was centered in the gulf energy industry and there were upwards of ½ million laborers displaced for a considerable period of time.
This is far less than Katrina and with no real hit on energy industry or longer-term displacement of workers.
Bottom Line
Sandy might reduce GDP growth by 0.1 - 0.2 percentage points, with a lot of that reduction being made up starting as early as within Q4 of 2012 and Q1 of 2013.The storm is terrible news for individuals directly affected, but not a big macroeconomic story.
Our thoughts and prayers are with everyone in the storm's path.
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