Analysis: Sandy aid gave economy near-term boost

Construction workers continue to rebuild the Long Beach Construction workers continue to rebuild the Long Beach boardwalk. (Aug. 16, 2013) Photo Credit: Newsday / J. Conrad Williams Jr.

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Billions of dollars in insurance settlements and federal aid coming to Long Island after superstorm Sandy will likely have a negligible effect on the economy in the long run, according to the Federal Reserve Bank of New York.

In a recent analysis, bank economists said the cash infusion brought forward spending that would have occurred in the future because homeowners, businesses and governments had to quickly clean up debris and repair damage wrought by the Oct. 29 storm.

This Sandy-related spending will make Long Island whole, not expand economic activity here, the economists said.

They predicted the contractors, building supply companies, automakers and retailers that are prospering now would suffer sales droughts in the future. Recent building projects include a new boardwalk for Long Beach, repairs to roads and mass transit, and new home construction.

"To the extent that insurance money comes in and FEMA money comes in to a point where it's enough to get people back to where they were before superstorm Sandy, then the wealth of the region is unchanged," said Jason Bram, a regional economist at the New York Fed.

"A lot of what the storm did was pull forward activity that would have happened further into the future," he said.

Bram and five others who authored the analysis cited the example of a homeowner who planned to replace a dented wood floor or aging refrigerator in a few years but after Sandy was forced to make the purchases immediately.

The economy was boosted temporarily, Bram said in an interview, but would fall back because the homeowner probably won't repeat the purchases in the near future. "The overall net effect to the economy may be fairly neutral."

This conclusion is preliminary, cautioned Bram, adding the NY Fed will continue to study the storm.

The impact of Sandy aid from the Federal Emergency Management Agency, Department of Housing and Urban Development and other federal agencies will be less than that for hurricanes Katrina, Rita and Wilma, all occurring in 2005, because of timing.

Sandy aid is being distributed more slowly due to scandals involving Katrina relief.

A year after Sandy, only 15.2 percent of federal disaster dollars will have been spent, according to estimates from the Congressional Budget Office. More than 50 percent had been spent a year after Katrina, Rita and Wilma.

Congress approved $60.4 billion in Sandy aid in January with a little more than half expected to come to New York State. Nassau County will receive about $6.6 billion and Suffolk, $1.8 billion.

Insurance settlements will total $20 billion for the New York region; no estimate was available for Long Island.

The funding, both public and private, only equals about 6 percent of the New York region's $1.3 trillion economy.

Irwin Kellner, chief economist at the financial information service MarketWatch and a former Hofstra University professor, said, "Disaster aid flowing to the victims of Sandy gives the economy a near-term lift, but it's not permanent."

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