Irene Damages Could Top $12 Billion+ in Physical Damage and Economic Losses, Depends on Flooding

The economic damage wrought by Hurricane Irene—everything from washed-out roads to lost hotel bookings—could hit $12 billion or more.

Source: Source: WSJ - Conor Dougherty & Leslie Scism | Published on August 30, 2011

That's the initial assessment of economists and insurance-industry officials who are beginning to count what was lost in the storm.

Tallying hurricane costs means looking both at the physical damage as well as lost economic output. At this point, insurers are estimating they will pay out between $3 billion to $6 billion in claims. As a rule of thumb, economists figure the total economic losses from such storms are roughly equal to twice the size of the insured losses.

The wild card that could push the total up even further is flooding, which is continuing.

"The wind is not going to be the story with this thing," said Jonathan Hall, executive vice president of commercial insurer FM Global. "The worst of the flooding really hasn't happened yet," he said.

Mr. Hall said claims thus far have been concentrated in North Carolina, New Jersey and Pennsylvania, and much of that involves flooding and business disruptions resulting from lost power and infrastructure problems.

Whatever the final cost, it's unlikely to register on the national scale. The U.S. economy produces some $14 trillion in goods and services annually, rendering even a $12 billion price tag—spread over several months—little more than a rounding error.

"Much of the lost output will be made up in the next few weeks as the insurance checks are sent out and the government provides some financial help," said Mark Zandi, chief economist at Moody's Analytics.

"For the quarter as a whole I don't think it will have a meaningful economic impact," Mr. Zandi added.

The aftermath of storms also can provide a short-term boost for the affected economies as insurance and aid payments flow in, providing new business and jobs for idle workers. The construction sector—one of the hardest hit by the 2007-2009 recession—may well see a short-term benefit. Since 2006, a net 329,000 jobs have been lost in areas that were hit by the storm, according to data from Moody's Analytics.

"We could expect to see some reconstruction feeding into gross-domestic-product figures," said David Resler, an economist at Nomura Securities.

This is not to suggest the economy is better off, as there is still a substantial loss of wealth and output that can never be made up.

Vermont and coastal North Carolina, two heavily affected states, have higher-than-average employment in the tourism sector and are now likely to see less business in the waning weeks of summer.