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By Jason Stipp | 10-31-2012 12:00 PM

Sandy Won't Ruin the Economy

Though the storm will subtract from fourth-quarter GDP, the rebuilding process could have a mild stimulative effect over time, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. Sandy cut a destructive and deadly path through the Eastern United States, but will it have a debilitating impact on the economy as well?

Here with me to offer some insights is Morningstar's Bob Johnson, our director of economic analysis.

Thanks for being here, Bob.

Bob Johnson: Great to be here.

Stipp: We do know that the storm has had a deadly impact. There's loss of life, obviously devastating property impact. We are going to talk about the economic impact today.

Let's start with the scope of the storm. What are some of the damage estimates from the effect of Sandy hitting the Eastern part of the U.S.?

Johnson: Well, there are two major modeling companies out there that make estimates of this, and EQECAT is one of them, and yesterday they put out their estimate that we'd probably have $5 billion to $10 billion worth of insured losses, and probably another $10 billion worth of losses that aren't covered for a total of about $20 billion. And the bunch won't be covered because [the damage] was because of flooding, and flooding is generally not covered under insurance policies.

Stipp: Can you put that into context of some other recent storms and the damage that those caused? Was this a big one? How does this fit in the continuum of damage we've seen in the recent past?

Johnson: Sure. I think this will probably end up rating in the top 10 number of storms out there, but on the other hand, it's no Katrina either. In Katrina, the direct economic impact was over $100 billion. And then, by the time we added the rebuilding of the levies and so forth, it was even a much, much bigger the number than that. So we are talking maybe $20 billion here. So we are talking a smaller number, but a still significant number.

And it's also less than Andrew, which was through Florida, which was estimated to be about $55 billion. But [damage from Sandy] will probably be more than Irene was a year ago.

So that gives you a little bit of scope and feel for what it is. It's big, it's important, but it's not the worst we've ever seen.

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