However, those losses in consumer and business spending as much of the East Coast shuts down for safety reasons, will not likely be permanent economic losses, said Peter Morici, former chief economist with the U.S. International Trade Commission.
In fact, there could be a net gain in U.S. GDP two years from now due to a boost in employment and activity for rebuilding efforts. The U.S. economy grew at an annualized rate of 2 percent in the third quarter, according to an initial estimate by the Commerce Department released last week.
Morici said the $12 billion in estimated consumer and business spending losses are actually delayed or displaced, depending on how essential many of the items are.
“People are going to buy clothing anyway,” he said.
In Washington, D.C., yesterday, Morici said few people were out on the streets as most of the federal government shut down. The New York Stock Exchange and other financial markets temporarily shut down to protect workers from traveling and working in affected areas.
While brick and mortar stores are shutting down, Morici said the reconstruction will likely add jobs after the hurricane hits.
“People would make purchases they wouldn’t normally make because of repairs,” he said.
Because the U.S. employment situation is in a precarious situation, with a 7.8 percent national unemployment rate, there will likely be additional spending in construction and related sectors. Morici said there could be $15 billion to $20 billion in new direct private spending.
As a result, the economic benefit from reconstruction could range from $27 billion to $36 billion after a multiplier effect in the economy.
“We’ll see people able to work who were not working,” he said. “If the country was in full employment, it would be a different thing.”
Morici said early estimates of Hurricane Irene’s direct damage in August 2011 were in the range of $7 billion. But Hurricane Irene’s damages totaled $15 billion to $20 billion.
Hurricane Sandy is likely to have a greater economic affect, with at least two days of lost commercial activity.