Retailers escaped serious property damage from Hurricane Sandy, but many in the mid-Atlantic and Northeast remained operationally paralyzed Tuesday due to power outages and transportation shutdowns that could go on for days, if not into next week.
Executives expressed relief that employees were safe, but said it would only be after all stores returned to normal hours that they could make reasonable assessments on business losses. While expecting the toll to be huge, they said it would have been worse had the situation occurred closer to a weekend or closer to Thanksgiving. But consumers could alter their holiday spending budgets, with more immediate needs suddenly arising from the storm.
The New York fashion industry remained at a standstill Tuesday, with almost all stores and offices closed throughout Manhattan. Streets were bustling later in the afternoon, however, as pent-up tourists wandered Midtown searching for stores that might be open. Companies said they were assessing risks although most expected to reopen today in some form.
Eqecat, an insurance consultancy that specializes in catastrophic events, estimated Sandy could cause $10 billion to $20 billion in economic damages, with $5 billion to $10 billion in insured losses. Other experts have estimated that just the shutdown of the New York subway system could cause $4 billion in economic losses a day. Factoring in the closure of East Coast oil refineries, which could drive gas prices higher, and other interruptions to business, total economic losses could tally$30 billion to $50 billion, according to IHS Global Insight U.S. economists Gregory Daco and Nigel Gault.
“The commercial shutdown of the East Coast is likely to result in gross domestic product losses that may outweigh infrastructure damages,” said Daco and Gault in their analysis.
“Quite a number of factors make Sandy’s punch more potent than Hurricane Irene’s,” which occurred last year, said Sohini Chowdhury, economist at Moody’s Analytics. “Sandy has caused more severe business interruption than Irene because it made landfall on a weekday, and was slower moving. Businesses from New York City to Washington, D.C., have been shuttered for at least two days now, power outages are rampant, and all forms of transportation have come to a grinding halt.”
The densely packed region between Washington and New York, which also includes Wilmington, Del., and Philadelphia, accounts for about $10 billion of the nation’s gross domestic product daily, Chowdhury said.
According to Planalytics, the firm that helps retailers plan their business based on weather patterns, initial estimates are that damages from Sandy will top $20 billion, and this will likely rise as the storm is still active and enveloping large population centers. If estimates hold, Sandy will rank in the “top 10” of most costly storms, more expensive than Hurricane Irene in 2011, which had estimated damages of $15 billion.
Sandy’s cost will be so significant because it stretched over 900 miles, impacted about a third of the U.S. population and lasted longer than most storms. Sandy triggered an estimated eight million power outages so far in the U.S., with New Jersey and New York City having the most, and with outagesreported as far west as Cleveland. For New York City, this was its largest-ever weather-related power outage.
As of Tuesday afternoon, an estimated 7.5 million people in the Tristate area remained without power.
New York stock and bond markets remained closed, which is an extremely rare occurrence on Wall Street, the last time being after the terrorist attacks on Sept. 11, 2001. The markets are expected to reopen today. The trading sessions, when the markets do reopen, possibly might be in for some rough sailing. After the markets shut down for Hurricane Gloria in 1985, the S&P 500 dropped 5.5 percent during the week after they reopened. The drop was 116 percent following the 9/11 terrorist attacks. But following the more recent Hurricane Irene in August 2011, stocks rose 3.5 percent when trading resumed.
Mark Montagna, senior analyst at Avondale Partners covering value retail, said, “The greatest impact of Hurricane Sandy is on our specialty apparel retailers since they own their own inventory. This group is likely to face lost sales and will resort to markdowns, if necessary, to keep inventory on plan heading into Thanksgiving week.”
President Obama is due to visit storm-stricken regions of New Jersey today and meet with Gov. Chris Christie. Moody’s Analytics economist John Lonski said Tuesday the aggregate measures of financial market risk aren’t aiding President Obama’s reelection bid. Lonski said, “When the incumbent President last won reelection in November 2004 and November 1996, aggregate measures of actual and perceived financial market risk were significantly under their recent readings. Accordingly, the risk aggregates are not supplying lift to the current incumbent’s reelection prospects.”
The current high-yield bond default rate is 3.8 percent and the VIX index, a measure of risk, is at a relative high of 17.8.
In 2004, the last time an incumbent president ran for reelection, the October 2004 data showed “considerably lower levels of actual and perceived risk in the corporate credit and equity markets,” Lonski said.
In 2004, the high-yield bond default rate was 2.9 percent and the VIX was at 15. The economist said when President Clinton successfully ran for reelection, the October 1996 high-yield bond spread was even lower. The high-yield bond default rate in 1996 was a low 1.9 percent and the VIX index was at a fairly stable 16.4.
The last time an incumbent president bid for reelection and failed was in November 1992. Then, George H.W. Bush was president, the high-yield default rate was 6.2 percent and the VIX was at a high of 17.6, on par with its recent reading of 17.8.
Also, Sandy produced more than 15,000 flight cancellations so far, compared with Hurricane Irene, which resulted in roughly 10,000 flight cancellations. Ten states declared a state of emergency, with parts of New York and New Jersey already being declared federal disaster areas. Also, locations in western Maryland, West Virginia, Virginia and Tennessee reported up to 2 feet of heavy wet snow.
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