How Sandy Washed Away Recent Job Market Gains
It takes a lot to knock the U.S. economy off course.
One month after being clobbered by the largest storm ever recorded in the North Atlantic, it's becoming a little clearer just how big an economic impact Superstorm Sandy is having.
As the cleanup of visible damage continues around his office in lower Manhattan, Brian Drum is tallying up the damage to the job market.
"Hiring has slowed down tremendously — it's almost like it's come to a halt," said Brian Drum, CEO of Drum Associates, an executive recruiting firm. "The jobs seem to be open, and the inventory seems to be available in terms of competent people. But companies are not making decisions."
Those hiring decisions will have to wait for many potential employers — still without power, communications or a place to issue paychecks.
In New York City alone, about a third of the 100 million square feet of downtown office space was still out of operation a week after the storm, according to brokerage Jones Lang LaSalle. That's roughly the total office space available in downtown Houston.
Sandy hit the East Coast on Oct. 29 and disrupted businesses from North Carolina to Maine. The nearly 1,000-mile-wide storm cut a wide path of death and destruction, killing 113 people, through a region that represents about a quarter of the U.S. economy.
Heavy rainfall combined with a storm surge, high winds, inland flooding and fires to leave millions without power and tens of thousands homeless. Thousands of retailers and restaurants were closed, many for good. Some 20,000 airline flights were canceled. Miles of roads and railways were destroyed or damaged. The storm forced shutdowns of financial markets and several nuclear power reactors.
With so many businesses closed, many of the roughly 10 million workers in coastal counties were tossed out of work. On Wednesday, the government reported that more than 75,000 workers filed a new unemployment claim last week in New York, New Jersey and Connecticut, mostly in the construction, food service and transportation industries.
After a healthy pickup in hiring in the second half of the year, some analysts expect Sandy to wash away a big chunk of employment in the monthly jobs data for November, due out Dec. 7.
"We are concerned there may be an acute hurricane impact on November payrolls," Deutsche Bank economist Joseph LaVorgna warned earlier this week in a note to clients.
LaVorgna noted that, following Hurricane Katrina in August 2005, the pace of new hires saw a downward swing of 127,000. He estimates the November report will show that hiring slowed to just 25,000 new jobs from a gain of 171,000 in October.
To be sure, there are other reasons for the pause in hiring decisions. Even before the storm hit, the ongoing recession in Europe and slower growth in China has brought a coordinated slowdown in the global economy. The November election did little to break the political gridlock over the federal budget and tax policy.
"I think people are still waiting to see whether there's going to be compromise between the two factions in Washington," said Drum. "But the situation was certainly exacerbated by the storm. "
A month later, thousands of families are still homeless and tens of millions of dollars of repairs have yet to be made. Despite lingering shortages of gasoline and isolated power outages, the region's economy is back up and running.
"It wasn't the massive disruption in the supply chain that might have been thought, given the severity of the storm," said Andrew Tananbaum, executive chairman at Capital Business Credit, a lender that services the retail sector.
With the insurance claims process just getting underway, industry estimates — of as much as $50 billion in property damage — are still preliminary.
"This is the fourth loss we've had of significance in the last couple of years which is outside the models we might use to ascertain the cost of such extreme losses," said Stephen Catlin, CEO at Catlin Group, a Bermuda-based insurer. "There are still people without houses to live in and still people without electricity. It's going to take a few more weeks before we're really clear as to how much damage and how much insured loss has been incurred."
Apart from the visible destruction, the economic impact has been widespread. The chaos unleashed by the storm has already begun showing up in the monthly data from industrial production and retail sales.
The Federal Reserve reported that the nation's total industrial output shrank by 0.4 percent in October, largely because of storm-related production shutdowns at utilities and makers of chemicals, food, transportation equipment and computers and electronic products.
Airlines sustained hundreds of millions of dollars in losses from more than 20,000 canceled flights. United and Delta reported last week the two carriers lost a combined $135 million in revenues from the storm. The shutdown of New York City's subway and commuter train network cost the city about $50 million in lost revenues, according to estimates from IBISWorld. The market research firm also figures the financial services industry lost $150 million in revenues after the storm knocked the NASDAQ and New York Stock Exchanges offline for two days — the first such weather-related outage in more than a century.
Mortgage applications fell by almost 40 percent in Connecticut, 50 percent in New York and more than 60 percent in New Jersey in the week after the storm, according to the Mortgage Bankers Association.
Retailers were among the hardest hit. A surge in sales of critical supplies and equipment before the storm was more than offset by a week of closed stores. Just a few days of lost business in October put a dent in the government's monthly retail sales tally.
November sales data will show an even bigger impact. Retail spending (not including cars) dropped in the Northeast by about 20 percent in the week following the storm, according to data collected by MasterCard. But that drop in spending will be offset as households hit by the storm spend to repair and replace damaged items, including waterlogged cars and trucks.
"A large number of dealers are back up and running, but there are still dealerships facing difficulties — just as there are neighborhoods still facing significant problems," said Paul Taylor, chief economist at the National Automobile Dealers Association.
Taylor said it's too soon to know how many cars will have to be replaced, but initial estimates put the figure at between 100,000 and 250,000. He also estimates that the increased demand for used cars will push up prices up by about 1.5 percent nationally — with bigger increases in states like New York and New Jersey, where demand is strongest.
Increased spending on repairs and shopping trips delayed by Sandy could help boost sales in December. But it may also cut into savings that were intended for holiday shopping.
That means nervous store managers may have to slash prices to avoid getting stuck with unsold goods, according to Jack Kleinhenz, chief economist for the National Retail Federation.
"I would imagine that those retailers in the area that were affected by the storm are going to be more prone to try and move their promotions and incentives out there," he said.
The wider economic outlook is harder to assess, as the stimulus effect of rebuilding is spread over many months. But Sandy's economic headwind at the end of 2012 could provide a boost to the first half of next year.
"With housing strong and vehicle sales likely to rebound as people replace Sandy-destroyed autos, the economy is on the rise," said economist Joel Naroff. "The only thing we have to fear is Washington itself."