On 29th October, 2012, the New York Stock Exchange (NYSE) officials decided to shut down the exchange for a full of 2 days in the wake of Hurricane Sandy. The last time something like this happened was way back in 1888, when insane snowfall resulted in NYSE being shut down on the 12th and 13th of March (the Great Blizzard of 1888).
Hurricane Sandy has been one of the most devastating hurricanes of the recent times. It affected more than 20 states, right from New England to Florida, in some way or the other. The state of New Jersey, where this 'superstorm' made its landfall, was one of the worst-affected places. Subways and tunnels were submerged, thousands of flights were canceled, power outage left millions in dark... in short, the entire East Coast was brought to a standstill by this hurricane. Overall, Hurricane Sandy had a greater impact as it was huge (in fact, the largest Atlantic hurricane on record), it affected the most populous region of the U.S., and lastly, it hit on weekdays (Monday and Tuesday).
The Economics of Hurricane Sandy
While the researchers estimate a loss of $20-$50 billion, they do agree that the impact of such events on the economy cannot be gauged in such a short time. A large part of the estimated loss is attributed to property loss (both insured and uninsured) and lost business days - with airlines, retail, trade and transport... virtually every business sector having to bear the brunt of this hurricane. It also resulted in immense damage to the public infrastructure - flooding transport facilities, damaging transformers and power lines. While conservative estimates put the total loss at $15-$20 billion, some sources put it at a whopping $50 billion.
The economic research team of Barclays puts the total financial loss caused by Hurricane Sandy at $30-$50 billion, which is more than what was caused by Hurricane Irene, but less than what was caused by Hurricane Katrina. The catastrophe risk modeling firm, Eqecat, had initially estimated a loss of $10-$20 billion, but their revised estimates hint at a loss of around $50 billion. This loss was largely a result of lost business due to power outage and damage caused to public infrastructure. With an estimated loss of $50 billion, Hurricane Sandy was the second most costliest hurricane in the United States' history.
New York was the most affected city; and, according to Eqecat, accounted to 34 percent of the total loss suffered by the nation. If the estimates put forth by Moody's Analytics are to be believed, the loss caused by Hurricane Sandy in the city of New York alone accounted to $12 million.
Temporary Rise in Gas Price
In the wake of Hurricane Sandy, the oil refineries on the East Coast remained closed for some time as a result of which gasoline supply was hampered. Even the transportation of fuel from refineries to the service stations was affected as the transport network was recovering from the impact of this hurricane. The resultant shortage of fuel caused the gasoline prices to rise in New Jersey, New York, etc. On the brighter side, this price rise is only expected to last for a few days as Hurricane Sandy only affected the refineries; and not the drilling sites as in case of Hurricane Isaac.
GDP Decline and Positives of Rebuilding
Except for a slight decline in the GDP growth, which was of 2 percent in the third quarter, no other notable changes are expected in the last quarter. However, a drop in the economic activity for the month of November is well on the cards as it will take some time to get the damaged facilities back on track. On a positive note, it is expected to make consumers and the Federal government spend more, and much of this expenditure will go into rebuilding, thus providing a much-needed boost to the economy. More importantly, the $500 billion collected in the form of insurance premiums last year will now be injected in the economy in the form of payouts.
Second Term for President Barack Obama
The damage caused by Hurricane Katrina in 2005 had put the Bush government under scanner for its inefficient handling of crisis, and had virtually marked the beginning of its decline. In contrast, Hurricane Sandy seems to have provided a new lease of life for the Obama government. President Barack Obama's handling of this crisis was praised by everybody, and the same might have just given the democrats that much-needed edge. With President Obama securing another term, it is highly unlikely that we will get to see any major changes in the economic policies.
Speaking purely of economics, any loss that occurs because of natural disasters is unintentionally made up for in the subsequent weeks with people and administration injecting money in the economy on the pretext of rebuilding. It wouldn't be much different this time around, as the financial loss incurred by Hurricane Sandy will be offset by recovery efforts.