How Much Will the Northeast Blizzard Cost the U.S. Economy?

A major blizzard has started that is shutting down most of the Northeast corridor of the USA. Cars and trucks are being banned from the roads. Subway and train service is shutting down. People are being warned that two to three feet of snow will fall on Philadelphia, New York and Boston. Flights are being canceled in droves and there are scenes of panic buying in supermarkets.  How much will this blizzard cost the U.S. economy?

Storms that shut down large areas cause billion dollar losses even if no one is hurt and no buildings are destroyed.  The losses come from unpaid wages and missed sales.

There are countless websites that report how much particular countries produce in a given year. Use any search engine to look for U.S. GDP (Gross Domestic Product) and you will see that the U.S. produces almost $17 trillion. However, knowing that the whole country produces $17 trillion a year does not help much when trying to calculate the impact of a severe storm that only affects an area from Philadelphia to Boston.

The U.S. government, however, not only calculates GDP for the entire country but also for states and key cities. Using the government’s metropolitan area data, the table below shows the cities in the storm’s path contribute over $6.8 billion per day to total U.S. GDP!

Blizzard_Losses

This means the upper limit on lost business is $6.8 billion each day cities in the Northeast are shut down. Not all that money is lost since some of that money will be made up. For example, any professional sports games that are going to be played tonight and tomorrow will be moved to other days. However, some of the GDP is lost forever. Hourly workers not paid because their employer shut down, hotel rooms booked but not used, restaurant meals not bought, and canceled events that are not rescheduled all represent examples of permanent economic damages caused by the storm.

While it is impossible to precisely estimate what proportion of GDP was lost, my best approximation is that between 1/3 and 1/2 will never be recovered. This means the blizzard’s daily cost is between $2.3 billion and $3.4 billion every day people are hunkered down in their homes and not out working, shopping and enjoying life.

When the storm is over the news will be filled with stories about how much money was spent removing the snow. For example, the City of Boston budgets about $18 million for an entire winter of snow removal. Whatever the actual snow removal costs are for this storm, the costs are dwarfed by the billions lost because stores, offices, schools, restaurants and other establishments are all closed for business.  For those of you in the storm’s path, stay safe and warm.  When you emerge to view the damage left behind, remember the storm’s main damage isn’t broken tree limbs and frozen pipes but instead damaged finances.

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UPDATE Jan. 28th:  The blizzard missed New York City, New Jersey and most of Connecticut.  These areas reopened the morning of Jan. 27th.  The blizzard did hit Massachusetts quite hard and shut down this state for an entire day.  This means the cost of the blizzard in the original blog post was overestimated since the greater New York area was not shut down.    A better estimate of the actual blizzard’s daily cost, which only includes the impacted areas of Boston and Worcester, is between $373 million and $560 million.

2 thoughts on “How Much Will the Northeast Blizzard Cost the U.S. Economy?

  1. We just hope that in this kind of situation business/govt. will always be aware or prepared for the possible outcome.

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