How Will Hurricane Sandy Impact The Economy?

| November 1, 2012 | 0 Comments

Hurricane Sandy is just another example of how investing can be completely unpredictable at times.  This week was supposed to be about earnings news, the presidential election, and Europe.  Instead, investors are laser-focused on the aftermath of Sandy.

It’s fortunate the markets are even open at this point.  The damage from flooding has the potential to knock out transportation and power in the area for days.

That being said, how will Sandy impact the economy? Is this a huge setback to what appeared to be momentum for an economic recovery?

Sure, it’s a setback.  But, it’s not nearly as bad you think.  In fact, over the longer-term, it may even benefit the economy.

That’s not to say Sandy hasn’t hit individuals and businesses hard.  Anyone whose home or business is underwater can attest to that.  However, what I’m talking about is from a macro perspective.  As typical, I’m focusing on the big picture.

Here’s the thing…

In the short-term, there’s certainly a large economic hit being taken due to Sandy.  Most estimates have $20 billion in damages and another $30 billion in lost economic activity.

A $50 billion disaster would be put Sandy up there as one of the worst in US history.

However, that number, which you’ll be seeing a lot of over the next couple weeks, is not an accurate representation of what’s really going on.

Yes, customers stuck in their homes or who evacuated the area haven’t been spending like they normally do – if at all.  (Although, many people did stock up on essential goods before the storm.)

However, the “lost” revenue is only temporary.  Many goods such as food, clothing, and other supplies will be purchased – just at a later date.

More importantly, billions of dollars will need to be spent on home, business, and automobile repairs.  In some cases, this is money that might have been spent elsewhere – say, on luxury goods.

In that sense, certain industries will definitely get hit harder than others because of Sandy.  However, the overall spending will remain the same… just shifted to different good and services.

What’s more, much of the damage will be paid for by insurance.  As such, insurance companies are likely going to take the brunt of the financial damage from the storm.

But all in all, spending shouldn’t decline at all.

And, if the storm forces people to use some of their savings, it could actually increase overall spending levels.  Keep in mind, many consumers have been sitting on cash due to economic uncertainty in recent years.

Finally, the storm could actually result in a hiring surge.  Government, construction, and other areas could see a spike in new jobs due to cleanup and repair efforts.  This could actually put many people back in the workforce.

Of course, that’s also a big positive for the economy.

Here’s the bottom line…

Sandy has become a terrible disaster for the East Coast.  However, the impact of the storm may actually result in longer-term benefits to the economy.  Some industries, like insurance, will take a hit, but others could thrive.  As always, the devil is in the details.

Yours in profit,

Gordon Lewis

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Category: Breaking News

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