Hurricane Sandy, One Year Later: Assessing the Economic Cost

Written by John Maxfield, Daily Finance

The intersection of hurricanes and economics is a heartless, insensitive place. If it can be avoided, you shouldn't go there.

We're referring specifically here to Hurricane Sandy.

For the Country as a Whole, Just a Blip on the Economic Radar

As we approach the one-year anniversary of the second most destructive storm in American history, thousands of people are still displaced from their homes, businesses continue to struggle, and municipalities are squeaking by on a fraction of the revenue that their now-devastated property tax rolls once generated.

Yet, from a macroeconomic standpoint, it's almost as if Sandy was nothing more than a figment of our imagination.

According to the Bureau of Economic Analysis, the domestic economy grew by a "very sluggish" 0.4 percent in the final quarter of last year -- the same period in which Sandy wrought havoc up and down the Eastern seaboard. It followed a 3.1 percent rate of growth in the third quarter.

While it's tempting to conclude that the storm had at least something to do with the sharp deceleration, the reality is that it didn't.

"Any effect superstorm Sandy may have had on aggregate economic activity in the fourth quarter of 2012 was well within the bands of the normal amount of 'noise' in quarterly GDP growth rates," concluded a handful of economists at the Federal Reserve Bank of New York earlier this year.

How Is This Possible?

This was a storm that caused almost 150 deaths. A storm that damaged or destroyed an estimated 650,000 homes. A storm that swept away $75 billion in physical capital, second only to Hurricane Katrina in 2005.

What's the disconnect here?

The answer is that destruction sows the seeds of growth, however paradoxical that may sound.

There's no better example of this than Home Depot (HD), which makes a living from selling supplies to homebuilders and renovators.

Comparable sales at Home Depot locations open at least 13 months shot higher by 7.1 percent in the three months following the storm. "New York and New Jersey were our best-performing regions, driven principally by Hurricane Sandy-related repair activity," said CEO Frank Blake.

Home Depot's chief financial officer told analysts that the chain generated $242 million in fiscal fourth-quarter revenue from "storm sales" alone -- far exceeding the $130 million that it earned in the aftermath of 2011's Hurricane Irene.

But -- and this is an important point -- the fact that some businesses and institutions profited from the storm, does not make up for the losses suffered by its hardest hit victims.

Building Foundations on Quicksand

As the one-year anniversary approaches, the media is shining an increasingly bright light on the slow rate of progress in places like Long Beach Island, N.J., and Breezy Point in Queens, N.Y.

A family profiled by The New York Times this week still owes $370,000 on a mortgage for their "gutted one-story bungalow... that engineers and FEMA inspectors agreed was damaged beyond repair in the storm." Yet, their flood insurance company concluded that they were due only $93,000, a fraction of what it will cost to rebuild.

And stories like this are legion.

On top of this, countless municipalities throughout the region have been forced to cut programs and services that were once funded by property tax rolls. Two New Jersey counties alone have seen property values fall by $5 billion thanks to storm damage. The net result has been to rob the local governments and schools of an estimated $77 million in revenue.

Assessing Sandy's Economic Legacy

At the end of the day, questions surrounding Hurricane Sandy's economic legacy aren't subject to easy answers. Some businesses benefited. Some people remain deeply affected. And if the macroeconomic scars were minimal, at ground level in the towns most affected, the storm is still far from over.