The US economy grew at an annualised rate of 2% in the three months to September, according to the latest estimates. That was better than a lot of people on Wall Street had been predicting. However, it hardly points to a roaring recovery in spite of the huge money-printing efforts by the Federal Reserve and lots of spending by the government.
Consumers do seem to be spending a bit more money – last month’s credit figures beat estimates – but at the same time businesses seem to be cutting back on investment. That will not help the 23 million currently out of work.
Now the US economy has the impact of Hurricane Sandy to deal with. There’s no doubt that this will reduce the output of the economy in the short-term, as many businesses have been closed and workers have stayed at home. Insurance companies are bracing themselves for the big repair job. No one yet knows the exact size of the bill – last year’s Hurricane Irene cost $16bn while 2005’s Katrina cost $108bn. The latest Eqecat (an insurance risk modelling firm) estimate is $10-20bn.
What the commentators said
As Neil Irwin puts it in The Washington Post, past storms offer some guide as to the likely impact of this one. Industrial production will suffer a dip as factories in the affected area have suspended production. Housing starts will also slow as construction is postponed. However, past evidence from Hurricane Katrina suggests that any dip will be “significant but short-lived”.
Tim Worstall in Forbes notes that gross domestic product (GDP) might even rise slightly as the US repairs the damage. But “we’re not in fact any richer at all despite the fact that GDP has gone up. What has actually happened is that some of our stock of wealth has been destroyed and we’re having to do more work in order to rebuild it.”
Roger Bootle writing in The Telegraph sees wider trouble ahead for the US economy. A different type of hurricane is set to hit it: “The immediate danger is the so-called ‘fiscal cliff’, under which sharp reductions in certain government spending programmes and rises in taxes start to come into effect on 1 January next year. The total value of these measures would be about $600bn (£372bn), or about 4% of GDP.” A tightening of fiscal policy of this magnitude “would send the US economy into recession”.