The economic impact of Hurricane Sandy

October 29, 2012

Hurricane Sandy has already prompted huge swaths of the East Coast to shut down — an area with a daily GDP of about $10 billion, according to Ryan Sweet, a senior economist at Moody's Analytics. But ultimately, economists expect the impact of the storm to be temporary, noting that there are ways that natural disasters tend to boost spending and spur economic growth as well as hinder it. 


A shopper runs in the wind-blown rain of Hurricane Sandy from a grocery store in Prince Frederick. (Linda Davidson/The Washington Post)

The negative impact on economic growth "is due to the fact that no one is working and no one is buying anything, when they otherwise might be," says Justin Wolfers, an economist at the University of Michigan. "To the extent that work not done today is work that will be done next week, then this temporary blip will have no effect when we look across the quarter as a whole."

What's more, there are ways that the hurricane may boost economic growth. First, "there are all those batteries and loaves of bread purchased over the past two days might otherwise have not been purchased, and this increase in spending translates into higher GDP," Wolfers notes. And the damage wrought by the hurricane "will yield even more spending re-paving roads, fixing downed electricity wires and rebuilding lost houses," he adds — reconstruction efforts that will be funded by insurance payments and outside federal aid. 

Other economists concur that Sandy's negative and positive impacts on the economy are likely to cancel each other out. "Hurricane Sandy will have a noticeable but temporary impact on the U.S. economy," Sweet of Moody's Analytics wrote in a research note. "While natural disasters take a large initial toll on the economy, they usually generate some extra activity afterward. We expect any lost output this week from Hurricane Sandy will be made up in subsequent weeks, minimizing the effect on fourth quarter GDP."

Even Katrina, by far the costliest hurricane in U.S. history, may have actually had a stimulative effect on the macroeconomy, as the Atlantic's Derek Thompson points out

That said, a lengthy disruption that knocks out the region's transportation lines and energy infrastructure could amplify the storm's economic fallout, Sweet adds. And the very act of trying to measure Sandy's impact on the economy also reveals how limited these indicators are in terms of measuring economic well-being and human welfare.

"It's an odd asymmetry that the physical destruction wrought by Sandy doesn't count in the national accounts, but the rebuilding does count," Wolfers points out. "While most economic indicators are usually reasonably closely linked to well-being, that's rarely the case after a hurricane," he later tweeted.

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Brad Plumer · October 29, 2012