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Economists weigh in on Sandy's impending financial fury

Date:
October 30, 2012
Source:
Mississippi State University
Summary:
In addition to the immediate physical impacts Hurricane Sandy promises the Northeast, economists say the storm also will bring intrinsic financial effects that are sure to unfold over the next few days and linger through the coming months.
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In addition to the immediate physical impacts Hurricane Sandy promises the Northeast, economists say the storm also will bring intrinsic financial effects that are sure to unfold over the next few days and linger through the coming months.

Monday and Tuesday marked the first unscheduled closure of the stock market since the 2011 terrorist attacks on 9/11.

"It's very rare for the markets to close, even for a weather event," said Mike Highfield, associate professor of finance and head of Mississippi State University's Department of Finance and Economics. "The last time the markets closed for two consecutive days due to weather was in 1888."

Highfield said Monday that he expects the markets will reopen Wednesday, but noted those decisions are being made day by day.

"It's very costly any time the markets close because it removes liquidity for individuals who may want to exit a position," he said. "Many times we see a fall when the stock market does reopen, mainly because of the event itself which caused the closure."

He explained that because Sandy affected the metropolitan areas of Washington, D.C., Philadelphia and New York City, an immediate economic loss of an estimated $20 billion dollars could be felt because of property damage. He added that, overall, an estimated $60 billion economic loss could occur when considering lost work time, lost tax revenue on wages, a loss of spending effect and loss of commerce during business closures.

"When you consider how many people we are talking about in New York City alone, the impacts are huge. The economies of these heavily populated areas will essentially come to a grinding halt while we wait for the storm to pass," Highfield said. He added that while devastating storms come with an immediate negative shock, investors tend to rebuild vigorously with increased investing in a damaged area during recovery.

"After Sandy passes through, there will be opportunity for the construction industry and additional private spending. There will be initial devastation, but people will end up coming back, and reinvesting.

"In the short run, it can be very painful. In the long run, it may be somewhat of an economic shot, but it will take several, several months. In the meantime, there is a lot of agony and sadness from a human point of view."

Highfield noted that losses could be harder felt from Sandy simply because the storm is targeting an area that most often sees hurricanes as a television event as they hit the Gulf Coast. This time, a lack of storm experience may amplify the impact, he observed.

Associate professor of economics and director of Mississippi State's international business program Jon Rezek said he expects the storm will have a lower impact on the country's oil and gas prices than other hurricanes which have tracked through the Gulf Coast. Sandy's path has not impacted the nation's refineries along the Gulf, and so there has been no supply interruption, he said.

"For the most part, gasoline will flow from a lot of the refineries down here to the rest of the country, with fairly minimal impact in terms of a price increase," Rezek said. He added the total number of refineries operating along the east coast is eight, compared to 54 in the Gulf region.

"In total, these facilities in the Northeast refine only about 6 percent of the country's crude oil," Rezek said. "Given the relative lack of refining capacity in the Northeast, a supply disruption there over the next few days will not likely cause near the disruption that Gulf storms have on national or regional gasoline prices."


Story Source:

Materials provided by Mississippi State University. Note: Content may be edited for style and length.


Cite This Page:

Mississippi State University. "Economists weigh in on Sandy's impending financial fury." ScienceDaily. ScienceDaily, 30 October 2012. <www.sciencedaily.com/releases/2012/10/121030142242.htm>.
Mississippi State University. (2012, October 30). Economists weigh in on Sandy's impending financial fury. ScienceDaily. Retrieved March 18, 2024 from www.sciencedaily.com/releases/2012/10/121030142242.htm
Mississippi State University. "Economists weigh in on Sandy's impending financial fury." ScienceDaily. www.sciencedaily.com/releases/2012/10/121030142242.htm (accessed March 18, 2024).

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