Increasingly bad weather hasn't had a big impact on the economy... yet

Dion Rabouin
Financial Markets Reporter

Forecasters warn that a nor’easter this week could drop a foot or more of snow on parts of the East Coast less than a week after another severe winter storm hit. As fears grow of increasingly intense weather causing greater damage, there’s concern that inflation could be pushed higher as Mother Nature disrupts supply chains. Meanwhile, GDP measures could become increasingly distorted as weather-related damage sparks spending. The National Oceanic and Atmospheric Administration reported in January that a slew of deadly hurricanes combined with wildfires and other events caused $306 billion in total damage, making 2017 the most expensive year on record for disasters in the United States. The bulk of the damage, at $265 billion, came from hurricanes.

A major winter storm battering the US east coast, undergoing “bombogenesis,” dumping heavy rain and strong winds. Storms and other natural disasters caused more than $300 billion in total damage in 2017.

The 2017 hurricanes, in addition to the usual cost of clean-up and repair to the areas impacted, also caused an increase to the price of gasoline – energy costs rose by the most since June 2009 – and raised the average price paid for vehicles in the country. The impact was felt not just in the months when the hurricanes struck but for a couple months after. The Federal Reserve even raised its gross domestic product target.

Bad weather made worse by special factors

But a number of factors made the recent storms particularly impactful, and future storms are unlikely to make similar impact, says Neal M. Soss managing director-senior advisor and chief economist of Credit Suisse First Boston. For another storm to register in a similar fashion, “certainly it has to be that kind of scale,” Soss said in a telephone interview. “That was a big scale event and it happened in an energy producing part of the country,” he added. “So there was a shock to energy production and energy availability and energy pricing.” The storm also had a unique affect in that it created demand for new cars without creating a stream of used cars to hit the market, driving up average prices paid. “If you get a nor’easter as we had in the east coast this weekend, what price do you think would’ve been influenced? Not gasoline, not used cars,” Soss said. “You may get a little bit of stronger pricing increases in home repairs for a month or two because more homes need to be repaired, but those are very small categories in the large scheme of things.” For another storm, or storms, to have that effect they would need to dump a similar amount of rain on a similarly populated part of the country that was also tied to an economically important industry like energy. “Hurricanes Harvey, Irma and Maria have devastated many communities, inflicting severe hardship,” the Federal Reserve said in a statement after its September meeting. “Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.” —

Dion Rabouin is a markets reporter for Yahoo Finance. Follow him on Twitter: @DionRabouin.

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