Do Big Storms Hurt the Economy?

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When Katrina devastated much of the Gulf coast and crushed New Orleans, several economists said the effects would hurt national gross domestic product. Economic activity in the region would slow, in some cases to a stop. Other economists argued that the rebuilding effort would add to GDP. This second school of thought assumed that only insurance company earnings would be hurt. The debate became increasingly complex as gas prices rose because of refinery shutdowns. As a massive storm is about to hit the Mid-Atlantic, New York and New England, the arguments for and against GDP growth can start again.

The storm will reach the East Coast as the holiday shopping season is at its very start, and a much less important holiday — Halloween occurs. The malls may not be as crowded, but people could shop later.

Car dealers will see less traffic, but car buyers usually take their time. Those people can, and probably will, shop later.

Some businesses may close for a day or two because of the storm. Can they make up the lost revenue? That depends on the type of business.

Home supply stores ought to get a small boost in sales. People will buy plywood and flashlights at Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW). Supermarkets should see extra traffic, too. Residents in the area that the storm will hit ought to buy water and canned food. And there will be repair crews working all over after the storm.

If the storm is fierce enough, even the stock markets may shut for a day and banks may close. It is anyone’s guess how that will affect the financial services industry. The stock market does not lend much to GDP, and banks will reopen in a day or two.

The argument that the storm will undermine GDP growth is foolish, but that will not stop the debate about the economic outcome.

Douglas A. McIntyre

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