Hurricane Irenes Full Impact

By Chris Reber Nostalgic memories of home certainly were conjured up inside of me this past weekend. Being a native Floridian, I would correlate anticipation of an oncoming hurricane to the northeastern expectations of an approaching blizzard; in hindsight for both there are usually an excessive amount of worry-warts that overreact to the advancements of the (thankfully)vapid storms, and the end outcome for the pair is usually more of an inconvenience than anything else. But upon further review of the full implications of Irenes aftermath, there may have been more damage done to the economy than what was initially estimated. While Hurricane Irene may have done less damage than expected, the storms impact will still be felt in multiple market segments. Insurance Past natural disasters have usually been followed by a somewhat economic boost through stimulus provided by insurance money or government aid. Insurance companies are going to pay less in the way of Irene-related claims than expected, and consequently this stimulus will be limited. In trading, Allstate gained 8.5%, Genworth Financial rose 8%, MetLife increased 5.9%, and Principal Financial Group grew 6.5% following the storm. The national flood insurance program is slated to expire by September 30th of this year, and the program is unlikely to have a forward acting decision made by Congress by that date. Tensions with budgetary concerns in DC have raised concerns about the governments actual role in this program. The last time a spending plan had these types of affects on commercial real estate was the terrorism insurance backstop, which lead to a drag on potential growth moves for the industry. A short term decision should be made sometime in regards to the national flood insurance program, but if not insurance companies will then have to pick up the bill. Construction With the ongoing malaise in the US housing market, there is a lot of idle construction capacity, but due to the limited property damage caused by the storm little of that capacity will be brought to bear on rebuilding efforts. Pre-storm anticipation for an immediate surge in construction spending was always too high -- Associated General Contractors of America economist Ken Simonson told GlobeStreet.com Most of the real construction work (post natural disasters) takes months or years at any rate and will not provide a short term boost. In some cases business and property owners will decide it is not financially viable to rebuild." With the storm being less damaging than expected, the impact will be even smaller. Retail Outside of home improvement stores in the most impacted areas, retailers will not see a dramatic increase in sales as consumers will not replace any damaged personal items. While significant purchases were made in preparation for the hurricane, post-storm sales will be lower

than expected as physical damages did not meet expectations. This means no padding to current wages or adding any jobs. Overall consumer confidence will stay in line with pre-Irene trends, as the boost in retail sales will be less than what was forecasted pre-storm. Productivity Irene caused cancellations of transport systems such as the New Jersey Transit and Metro-North Railroad Monday following the storm, and many northeastern laborers had to find alternative ways to come into work or work from home (some working with power generators running at their dwellings). The Wall Street Journal reports that an NYSE spokesman estimated that 20% of the exchanges 1,200 stock and options traders were missing from work following the hurricane. Train, flooding, and power issues all might become problems lasting longer than expected as municipalities are strapped for cash and may take longer to deliver relief. But as Cary Leahey of Decision Economics points out, lost output (projected as 50bps of Q3 GDP) will be recouped in Q4, as storms typically help GDP growth but destroy wealth. As wealth is rebuilt, GDP rises since GDP measures production, but not wealth.