Natural disasters like the Alabama tornadoes probably won't bruise US economy

The Associated Press By The Associated Press The Associated Press
on May 28, 2011 at 2:36 PM, updated May 28, 2011 at 4:51 PM

WASHINGTON (AP) — The tornadoes and floods that have devastated parts of the South and Midwest have also hammered the local economies — flooding farmlands, suspending factory work and disrupting energy production.




Early forecasts estimate that the economy will have grown at a 2.5 percent to 3 percent annual rate in the current April-June quarter. That's a relatively weak pace that wouldn't spur robust job growth. Still, it's above the 1.8 percent growth the government reported Thursday for the January-March period. The natural disasters haven't led economists to reduce their estimates for April-June quarter.

"This is a very extreme year," said Tom Larsen, a senior vice president at Eqecat, a firm that estimates the impact of catastrophes for insurance companies and government agencies. "If it were to stop right now, it would be a once every 25 years' or every 50 years' occurrence."

But Larsen doesn't expect it to stop. "There will be more tornadoes and more property damage," he said.

Typically, damage caused by tornadoes is more concentrated than damage from powerful hurricanes, such as Katrina, economists say. The tornado that devastated Joplin, Mo., on Sunday probably won't slow the overall state's economy very much, said Ben Kanigel, an associate economist at Moody's Analytics. That's because Joplin accounts for only about 2 percent of Missouri's economic output.

Larsen estimates that the Joplin twister, the deadliest in the United States in more than six decades, and the tornadoes in late April that damaged parts of Alabama and six other Southern states could cause more than $8 billion in losses. His firm hasn't yet made a similar estimate for the Mississippi flood.

Though a blow to the local areas, $8 billion in losses would hardly make a dent in a national economy that produces about $15 trillion in goods and services every year. The United States is the world's largest economy.

The economy is measured by the gross domestic product. The GDP tracks only what the economy produces; it doesn't account for wealth or property. So if a tornado destroys a factory, the value of the lost factory isn't counted in GDP. Only its lost output is. Likewise, the loss of a house and other personal property isn't reflected in GDP.

Yet rebuilding from a disaster can add to GDP, because reconstruction would boost output. Construction firms rebuild homes and factories. And consumers replace lost cars and appliances. That's why analysts predict that any loss of economic output in the April-June period would be reversed in the July-September quarter.

"Despite the fact that Joplin and Missouri are clearly worse off, we don't subtract this destruction from GDP," said David Mitchell, an economist at Missouri State University. "But we do add people's work to recreate the infrastructure, homes and buildings that were destroyed. In this sense, GDP can be a poor measure of a country's economic well-being."

The disasters have had devastating consequences for many communities. The American Farm Bureau Federation estimates that nearly 3.6 million acres of farmland are either under water or have been damaged by the Mississippi River flood. The river, swollen by spring rains and a large snow melt, has forced evacuations of thousands of homes from Tennessee to Mississippi.

John Michael Riley, an agricultural economist at Mississippi State University, estimates that the flood has destroyed up to $1.5 billion of corn, wheat and other crops. Livestock pastures and fish farms have also been hurt, he said.

Still, some industries haven't been hit as hard as analysts had feared. Many had economists worried that several major oil refineries near New Orleans might be flooded and have to shut down. That would have crimped supplies and potentially driven up the price of oil. But that didn't happen.

"The worst fears have not been realized as of yet," said Andy Lipow, president of Lipow Oil Associates, a Houston-based firm.