August 26, 2011

Massive infrastructure damage expected from Hurricane Irene


As Hurricane Irene shut down New York and steamed up the East Coast on Saturday, experts were forecasting a multibillion-dollar disaster. As for the overall economic impact on the United States, a Moody’s analyst is not revising his forecast because any lost output will be made up in subsequent months as construction firms go to work rebuilding and consumers replace damaged property.

The affected area is home to more than 50 million people, some of America's most densely populated cities and costliest waterfront real estate.

“It’s probably going to be very damaging,” said Roger Pielke, a University of Colorado professor and fellow of the Cooperative Institute for Research in Environmental Sciences.

A computer model of Irene's potential impact puts the estimated damage at $4.7 billion, according to research by Pielke and catastrophe-insurance provider ICAT. That figure, which came from analyzing 27 comparable storms dating back to 1913, includes destruction of homes, cars, public infrastructure and other property caused by high winds and flooding. The number doesn't factor in the added impact of lost sales from shuttered restaurants, quiet casinos, cancelled flights and boarded-up stores __ all of which could add billions of dollars to the fallout.

Statistician Nate Silver, who crunched the data for his New York Times blog, puts the worst-case estimate at $35 billion -- half of New York City's annual budget -- if Irene were to pass directly over Manhattan with 100 mile-per-hour (160 kph) winds. While the odds of a direct hit on the city are slim, a Category 2 storm passing within 50 miles (80 kilometres) of downtown would cause $10 billion in damage, according to Silver's model. Some are drawing comparisons to the New England Hurricane of 1938, nicknamed “The Long Island Express,” which packed 100-mile-per-hour (160 kph) winds when it made landfall in New York and destroyed 8,900 homes across southern New England. Were the same storm to occur today, it would cause $46.2 billion in property damage, according to ICAT, because the coastal regions it hit are now home to many more businesses and expensive homes.

“Everybody wants to live by the ocean,” says Chris Hackett, director of personal lines policy at the Property Casualty Insurers Association of America, who notes that as much as two-thirds of the New York's insured property value is along the coast.

On the less-severe side of ICAT's Irene model are East Coast storms that wreaked less havoc. In 1985, Gloria resulted in $2.5 billion in damage (adjusted to 2011) after it made landfall on Long Island, New York, as a Category 1 storm with 85 mph (137 kph) winds. Hurricane Belle, which hit New York in 1976, caused just $570 million in damage, despite 90 mph (145 kph) winds.

The impact is expected to be significant for the nation as a whole because the major metro areas that will be affected, including New York City, Philadelphia, Boston, Baltimore and Washington, account for 16 per cent of national economic output and 14 per cent of total employment, according to Moody's economist Ryan Sweet.

“If damage is severe and disrupts production for several days, there will be a noticeable impact on the national economy for August,” says Sweet. But he expects any lost output to be made up in subsequent months as construction firms go to work rebuilding and consumers replace damaged property, so he isn't revising his quarterly GDP growth estimate of 1.5 per cent annualized.

“Of course, that could all change after this weekend,” he says.

With files from Mitch Weiss and Samantha Gross of the Associated Press

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