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Hurricane Sandy Costs Could Hit $100 Billion

Already the estimates for Hurricane Sandy costs of storm damage have more than doubled, from $20 billion to $50 billion due to the magnitude of the storm.

There are others running as high as $100 billion, although most are in the $50 billion range. The costs for the insurance industry will be around $10 billion, according to EQECAT, an economic forecasting firm.

So far it looks like Hurricane Sandy costs will fail to top the most expensive storm in the history of the United States, Hurricane Katrina in 2005. Total expenses as a result were $108 billion. That is the equivalent of $128 billion in today's dollars.

For Hurricane Ike from 2008, the cost was $32 billion. Hurricane Andrew, which hit in 1972, resulted in $44 billion in economic damages.

Parts of Hurricane Sandy's costs are the widespread power outages still plaguing the Northeast. According to the Department of Energy, Hurricane Sandy knocked out more electricity for more homes and businesses than any other storm in the history of the United States.

That highlights two aspects of Hurricane Sandy that have made it so damaging to the American economy: its location and its timing.

Why Hurricane Sandy Costs Are So High

Hurricane Sandy hit in the most heavily populated area of the United States, the mid-Atlantic region of the Eastern Seaboard. Cities such as New York, Philadelphia, Boston, Baltimore and Washington, DC were all pounded.

Hurricane Sandy struck very hard on New York City, which is densely packed with both commercial and residential properties. The New York Stock Exchange was closed for the first time since 9/11. Millions are still without electrical power.

Major transportation hubs that connect to the rest of the country, Europe and Latin American dot the East Coast. Airports at New York, Boston, Philadelphia, and the Washington, DC are very busy with domestic and international traffic. Many are spokes for major airlines. Smoothing out the air travel alone will be very costly and take weeks.

Much of the populace in the affected areas relies on public transportation. Hurricane Sandy knocked out the NYC subway system, which has restored most of its service. The subways and other train lines in Washington, DC and other areas were closed due to the storm.


Compounding the damage from the locale of Hurricane Sandy landing was its timing.

Hurricane Sandy hit at the beginning of the peak holiday shopping season. Halloween alone brings in an estimated $10 billion to the American economy. Holiday shopping begins earlier and earlier each year. Wal-Mart Stores Inc. (NYSE: WMT) has already started its lay-away program for Christmas.

Despite the warning, many cities were unprepared for the wrath of Hurricane Sandy, increasing the economic costs.

According to an article in USA Today, "More than 100 municipalities in areas declared a federal emergency this week have received the worst ratings from Washington under a program that rewards communities for trying to minimize flood damage."

The program awards flood discount premiums for those cities that take precautionary measures to mitigate storm damage. Amazingly enough, New Jersey beach communities such as Sea Bright and Ocean Township did so little to prepare for a hurricane that no discounts were earned. Each received the worst insurance rating from Federal Emergency Management Agency (FEMA). Hundreds of homes in these and other beach communities in New Jersey were washed away from the forces of Hurricane Sandy

Overall, Moody's predicts that loss in gross domestic product from lost business and fewer shoppers will be $10 billion a day in the region from Washington, DC to New York City alone. Much of that will be gone forever for some businesses as shoppers buy online rather than wait for a store to re-open.

Much of the overall loss will be recovered in the rebuilding activity, however.

Mark Zandi, Chief Economist for Moody's, stated that, "Assuming the storm creates havoc for no more than a few days, there should be little impact on fourth quarter GDP. Whatever output is lost in the new few days will be made up in the subsequent weeks."

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  1. John | November 6, 2012

    Hurricane Andrew occurred in 1992, not 1972 as stated in this article.

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