Storm Could Be A Difficult Blow For The Weak And Vulnerable Nation’s Economy
Late last month, and earlier this month, the country was mired in economic and political turmoil. Congress was at an impasse over the debt ceiling, and it almost caused the country to go into default. Credit agencies such as Standard and Poors took this as a bad sign, and downgraded the United States credit rating from AAA to AA+ for the first time in the nation’s history.
The political controversy over the impasse, and the aftershock of the downgrade of America’s credit rating along with other poor economic news such as the GDP in the second quarter growing at a slower rate than originally indicated, put the markets on a roller coaster ride that lasted for about ten days. In addition, European economies are in crisis as major banks there are trying to prevent the next Bear Stearns or Lehman Brothers while countries such as Greece have implemented austerity measures in an attempt to stay financially afloat.
Now, after a somewhat tranquil hurricane season, Irene has come along, and has become at least a once in a generation threat to the Mid-Atlantic, Northeast, and New England. Hurricanes are a rarity in these parts of the world, but they do happen, and with a heavily and densely populated region that has many coastal vulnerabilities, it does present a huge economic dilemma. As of today, insurance companies have already estimated the damage from this hurricane could total at least $13.9 billion.
However, damages could far exceed those early estimates depending on the intensity and track that Irene ultimately takes. Estimates could be as high as $30 to $40 billion. Regardless of the amount in terms of the recovery, the damage to infrastructure such as roads, bridges, and communication lines as well as many businesses puts not only a good deal of the East Coast out of service for a while, but also gives the nation’s economy a very difficult blow at the worst time.
The region that is in the path of this storm, Costal Carolina, Washington D.C., New York, and Boston all account for about $3 trillion of the United States economy. In percentage terms that breaks down to about 20 percent, or $12 billion dollars per day. So, imagine the hurricane directly impacting all of these areas, and knocking them out of commission for just a week. The cost of that translates to $84 billion. Two weeks could cost $168 billion. A month could cost $325 billion.
You also have to figure into the personal losses. Businesses would have to close if power was not available to run, or office space was damaged or flooded. Consequently, people wouldn’t be able to show up for work leaving many without a paycheck for an indefinite period of time. If people are without a paycheck, they have no money to spend, which causes demand to decline, and other businesses would suffer.
Looking at past storms that have affected the East Coast provides some insight on the impact. Let’s take the 1903 hurricane for example. This storm was the last hurricane and one of only two to directly impact the Garden State. It was only a Category One storm on the Saffir-Simpson Scale, but in today’s dollars, it would leave approximately $13 billion in damage according to an article from the New York Times blog.
Fast forward 35 years to the Long Island Express hurricane of 1938. It was the last major hurricane to threaten Long Island and New England. Back then, Long Island wasn’t as heavily populated as it is today. The damage from such a storm in today’s dollars would be $45 billion, which is still far short of Katrina, but still nothing to sneeze at. Other storms that impacted Long Island such as the Great Atlantic Hurricane of 1944 and Hurricane Carol (1954) would leave anywhere from $15 to $18 billion in damage.
Hurricane Donna took a path through the Florida Keys into Florida, up the East Coast into North Carolina and Long Island. It was a Category Five storm at one point, but eventually weakened to just 105 mile per hour winds in its closest approach to New York City back in 1960. In today’s dollars, it would leave behind over $34 billion in damage. Even what was left of Hurricane Agnes, which dumped a ton of rain over New York, New Jersey, and Pennsylvania back in 1972, would bring $20 billion dollars in losses in today’s economy.
With poor job growth, slowing our stagnant GDP, credit rating downgrade, and political bickering in Congress, the last thing the staggering U.S. economy needs is a devastating hurricane to its most productive region.