Storm rebuilding may encounter delays, but will fuel construction for next 12-18 months
The “Impact of SuperStorm Sandy on the Regional and Macro Economy,” a webinar hosted by the National Association for Business Economics today, estimated a total storm-related loss of $30-$50 billion, centering on casino revenue, damage and destruction of rental properties along the New Jersey shoreline, and travel disruptions resulting from the tropical storm.
The effect on construction is mixed, with some estimates of robust construction activity in the next 12-18 months to rebuild properties, and other projections citing delays in insurance funds to spur construction and folding of business operating on the brink of solvency.
Gregory Daco, senior principal US economist, IHS Global Insight, estimated insured infrastructure losses at $10-$20 billion, noting that total losses are usually equal to twice the insured totals. Total infrastructure losses and disruptions to business activity may climb beyond the estimated $30-$50 billion, but the impact may not be discernible in final GDP figures for the year. About 70 percent of oil refining capacity in the Northeast was idled, but measures such as gasoline rationing in New Jersey and tankers bringing additional oil to the region is speeding recovery.
Charlie Steindel, chief economist, New Jersey Department of the Treasury, reported that as of November 6, less than 20 percent of New Jersey utility customers are without power down from nearly three-quarters of customers without power in the early days of the storm. He noted a flare in auto sales to replace vehicles destroyed in the storm. New Jersey governor Chris Christie has temporarily repealed Blue Laws in mall-centric Bergen County, which will allow extra shopping time for residents affected by the storm and recouping of income for stores which had to close due to the storm.
Ken McGill, managing director for Rockport Analytics noted that travel was significantly affected with about 20,000 canceled flights and 2 million total air-and-ground trips lost during a four-day period. This represents $1-$2 billion lost in leisure and business travel mainly to suppliers of food, lodging and air travel. However, he predicted only about 25 percent will be permanent losses, with the majority of trips expected to be rescheduled. Steindel added that workaround measures allowed business to be conducted remotely, online or from home or public libraries with power.
The major impact of the storm is on New Jersey tourism in the areas north of Atlantic City, such as hard-hit Long Beach Island, communities of Brigantine and Beach Haven and the Tuckerton retirement community, Steindel said. The goal is to rebuild in time for the summer tourist season, which begins Memorial Day 2013. The challenge is that many of the accommodations are individual rental homes, not hotels which are simpler to rebuild. A quarter of the $12 billion accommodations spending in New Jersey is rental homes across the state, said McGill. On Long Beach Island alone, $300 million is hotel revenue, and $900 million is rental homes.
According to Kemm Farney, manager, economics and forecasting, PEPCO Holdings, Inc., most of the state’s largest commercial customers and flooded casinos never lost power and have reopened. However, the cancellation of the Hard Rock Casino project and the lackluster performance of the new Revel casino, which opened in April and brought 5500 new jobs to the area, “leave casinos in a continuing-to-struggle environment,” Farney said. He added that small businesses in the area that are dependent on credit cards and second mortgages for credit are struggling, and slightly larger small businesses need sales to fuel reconstruction. He struck a optimistic tone that once insurance monies start flowing, “it will keep South Jersey tradesmen very busy for the next 12-18 months, which is a very good thing.”
Ken Simonson, NABE president and chief economist, Associated General Contractors of America, was more reserved about construction opportunities, citing delays in the infusion of insurance funds and support from the federal government for repairs on highways and roads and a lengthened time frame for procurements of equipment and materials.
“Some businesses will not reopen,” Simonson said, “Some who were ready to expand will cancel those plans.” As for homeowners, Simonson said new homes won’t “translate into one for one replacement. The net impact on construction industry will be small and a negative over a period of time. We will see a slowing down of economic activity and with it construction activity.”
Simonson predicted that longer hours for existing workers will ensue and despite an ample number of construction workers, “additional employment will be modest and gradual aside from immediate crews for cleanup stabilization and emergency repairs.” Capacity is plentiful — 12,000 construction payroll jobs were lost in New York and New Jersey last year, so labor shortages are not expected. However, since the beginning of 2011, he said, construction spending has risen 13% but employment only represents a fraction of a percent.
Similarly, capacity is plentiful for materials and equipment – it’s only currently at 30 percent of the peak levels of six years ago, Simonson continued. Wallboard and lumber prices rose pre-storm, but production is expected to be ramped up quickly to meet new demand. Some work may be hampered due to flooded equipment or sites where workers don’t yet have access.
Simonson also does not expect much investment in storm protection construction. “We don’t have a history of the U.S. engaging in protective investment. I’m not optimistic for a big uptick in this kind of construction spending.”