Nov. 23 (Bloomberg) -- Anthony Ortiz and Paul DaSilva of New York-based Gateway Plumbing & Heating talk about the possibility of an economic boost to some workers and businesses in the wake of superstorm Sandy. Gateway, which had 20 full-time employees but hired two more post-Sandy, has seen a 20-25 percent increase in business, according to co-owner David Cataneo. Ortiz and DaSilva spoke to Bloomberg's Susanna Pak while working at a storm-damaged building on Jane Street in the West Village. (Source: Bloomberg)
“We’re just not getting to some people that are asking for help,” said Cataneo, co-owner of Gateway Plumbing & Heating in Manhattan. “But we’re doing the best we can.”
Cataneo’s experience shows how the storm is giving the U.S. Northeast -- and the rest of the country -- an economic boost that may eventually surpass the loss of business it caused. Reconstruction and related purchases and hiring may range from $140 billion to $240 billion and increase U.S. economic growth by 0.5 percentage point next year, assuming $50 billion in losses, according to Economic Outlook Group LLC, a Princeton, New Jersey-based forecasting firm.
“Construction costs to rebuild all that was lost will be more than simply replacement because a lot of the work will also involve fortifying structures,” said Bernard Baumohl, chief global economist at Economic Outlook. “We’ll see construction ramped up, and that’s going to bring in jobs and an increase in demand for material of all sorts, and that’s going to further stimulate the economy.”
Estimates of insured damage caused by Sandy range from $7 billion to $25 billion. When lost wages and sales are added, the total comes to $50 billion, according to Oakland, California-based catastrophe risk modeler Equecat Inc. -- a figure that may be recouped next year as repair and reconstruction efforts spur new building and sales of household goods.
Sandy may reduce economic growth by 0.25 percent to 0.5 percent in the fourth quarter after it disrupted industrial production, retail sales and employment, according to economists at Goldman Sachs Group Inc. Most of the reconstruction will take place in the first quarter of 2013, adding as much as half a point to growth, according to a Nov. 21 note to clients.
The stimulus is likely to last longer. Insurance claims payments and government funds typically boost the economy for 18 to 36 months after a natural disaster like Sandy, said Jeff Burchill, chief financial officer of FM Global in Johnston, Rhode Island, a policyholder-owned insurer that writes coverage for businesses.
“You get a lot of reconstruction and construction that otherwise would not have occurred,” Burchill said in a phone interview.
Reconstruction following a storm has an effect similar to a government-funded stimulus program, said Gary Schlossberg, a San Francisco-based senior economist at Wells Capital Management, which oversees about $331 billion.
“It’s certainly a form of stimulus, no doubt, and the ripple effects of the spending could leave you further ahead than where you were at the start before the storm,” said Schlossberg. “The administration wouldn’t want a hurricane to be a source of stimulus because the costs in losses and suffering outweigh the benefits.”
President Barack Obama last year proposed the American Jobs Act, which would have cut payroll taxes for workers and employers, provided aid to states for schools and emergency workers and increased spending on public-works projects. The $447 billion package was blocked by Senate Republicans.
Economic benefits of the storm will come as homes are repaired, rebuilt and refurnished, according to David Crowe, chief economist for the Washington-based National Association of Home Builders. Buyers of new homes spend an average of $8,000 on furniture, appliances and landscaping, he said.
The economic boost from housing construction “would take place over several years,” Crowe said, based on the experience of Hurricane Katrina, which struck the Gulf Coast in 2005. “And it wouldn’t start until sometime next year out of the need to plan for what remodeling and construction the homeowner wants to make.”