There is something almost perverse about the economic assessment of a natural disaster or major storm, like the one that hit the U.S. Mid-Atlantic and Northeast areas early this week. In the midst of all the painful and tragic destruction, there is the inescapable fact that people and communities rebuild after a disaster – and the richer the community the swifter that reconstruction becomes.
The storm that is ravaging the eastern seaboard will cause billions in damage. The vast majority of the businesses and people affected by this storm have insured their property against just such a development and, in the weeks and months to come, they will be receiving billions in payouts so that they can start to recover. There also will be millions more coming from the federal and state authorities. None of this aid will replace the lost memories and treasures, and it will certainly not help those who will lose loved ones in the catastrophe. However, from an strictly economic point of view, the aid will boost the regional economy.
The most immediate impact will be on industries that have been forced to shut down and lose customers that can’t be replaced. This is the transportation sector mostly – notably, airlines that cancel flights lose that revenue forever. The retailers will likely benefit in the short term as people have been stocking up—at least those that do not suffer damage and power loss. In the longer term the reconstruction process will add billions to the economy and will mean that jobs will be on offer for many months to come. The estimate is that local GDP growth will increase by as much as 1% when all is said and done.
It is the fickle nature of disaster: The damage can’t possibly be underestimated and the silver lining is not on people’s minds as they watch their lives ripped to pieces. Many of those who are being battered right now may not recover fully for years, but the region itself will come out ahead once the recovery process gets underway. At various points in history, it has been a massive tragedy that stimulates growth. For example, the utter destruction of World War II propelled the U.S. economy out a deep recession and stimulated a decade of growth.
-Chris Kuehl, PhD., NACM economist