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Thursday, November 1, 2012
Hurricane Sandy deals short-term blow to U.S. economy
The mammoth storm Sandy, ravaging in the densely-populated East Coast of the United States, was predicted to deal a short-term blow to the world's largest economy and may further affect financial markets.
Economic losses caused by Sandy, whose sheer breadth has taken scores of lives, cut power supply to millions and flooded subways, were preliminarily estimated to outdo Hurricane Irene which cost the United States 7 billion dollars and 4.5 billion dollars in insured losses last year.
RMS, a firm calculating disaster exposure, said in a report on Tuesday that Sandy is much more severe and has impacted New York City to a much worse degree than Irene.
Unlike Irene which landed at the weekend, Sandy came ashore on Monday, shutting down business and even the New York Stock Exchange, the first weather-related closure of Wall Street in 27 years, said the company.
In a preliminary evaluation, IHS Global Insight, a forecasting company, said damages from storm Sandy could reach 20 billion dollars, with around 10 billion dollars insured.
Disaster modeling company AIR Worldwide said that Sandy could cost the United States insured losses from 7 billion dollars to 15 billion dollars, the third largest amount in U.S. history. The company's estimation excluded losses caused by flood submerging subways or tunnels.
State Farm Insurance Company said on Monday that it had received 6,000 insurance claims for houses and 900 for cars, much more than the 1,000 claims it faced 24 hours after Hurricane Issac made landfall in Louisiana in August.
Although Sandy's total impact on the economy has yet to be felt and its damage is unlikely to last long, it would apparently hurt the economic output of the fourth quarter.
According to IHS Global Insight, "the effect on growth for the fourth quarter will not be catastrophic but might still be noticeable, especially in an economy with little momentum anyway."
The firm said the lost output in the affected regions would subtract as much as 0.6 percentage points from the economic growth in the fourth quarter.
The most affected economic sector for short term was the crude oil industry, as Sandy shut down 70 percent of U.S. East Coast refineries.
More concerns were raised after a Phillips 66 refinery in Linden, New Jersey that produces 238,000 barrels a day of fuel ground to a halt due to power cut. Although the power supply has already been recovered, no timetable for resuming oil production has been set yet.
Sandy also forced several ports and railroads to close, causing logistical problems in delivering fuel. More than half of gasoline service stations in New York City and New Jersey were shut because of depleted fuel supplies.
Concerns about oil supply helped push up the gasoline futures, which in turn led to a rise in the price of benchmark crude.
However, analysts from BNP Paribas, a French global banking group, said the impact of Sandy on U.S. oil production would not last long, because the timely shut-down of machines to ward off the damage from water would enable refineries to resume pumping fuel soon.
Meanwhile, the New York Stock Exchange (NYSE) reopened Wednesday after an unprecedented two-day shutdown of trading. However, the effects of Sandy were still being felt.
On Wednesday a failed backup power generator forced Knight Capital, a top U.S. market maker, to inform clients to send trades to other brokerages.
Stocks for insurers, airlines, and transportation industry dipped temporarily while stocks for Home Depot and Lowe, two major American home improvement chains, rose as investors anticipated more business for the the two companies as people made repairs in the aftermath of the devastating storm.
Ted Weisberg, a veteran of the trading floor for 43 years at NYSE said the reactions from different sectors would be relatively short-lived.