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October 31, 2012 at 09:19 AM
PIMCO CEO and co-Chief Investment Officer Mohamed El-Erian says uninsured small businesses will suffer the biggest impact from the Hurricane Sandy superstorm that hit the East Coast this week, but they shouldn’t expect much government help to recover from the disaster.
Also billed as “Frankenstorm,” Hurricane Sandy forced the New York Stock Exchange to close up shop for two days in a row due to weather for the first time since 1888, but El-Erian said the storm’s overall impact on GDP could be positive.
“Uninsured small businesses and personal sectors will be particularly badly hit,” El-Erian (left) wrote in a CNBC guest blog post, “Sandy’s Market Impact—From the Known to the Uncertain.” “The upfront decline in GDP and the destruction of physical wealth will be offset over time by greater economic activity.”
Indeed, even though the NYSE used a generator to start up operations Wednesday and local transit was limited, the stock markets were little changed on the first day of post-storm trading despite fears that volatility would be pronounced. At midday, the Dow Jones industrial average was down 43.39 points, or 0.33%, at 13,064, and the S&P 500 was down 4.53 points, or 0.32%, at 1,407.
El-Erian Pinpoints 4 Frankenstorm Outcomes
Noting that he foresees four possible outcomes due to Hurricane Sandy, El-Erian said that his first concern was for individual sectors, where distinct winners and losers are likely to emerge.
“Specific segments have suffered demand destruction, which will be difficult to reverse in the short term,” he wrote. “Think here of airlines, other transportation companies, and parts of the retail sector in some of the major population centers on the East Coast. Some have also incurred higher costs. Business interruption insurance will only partially offset the hit on these companies’ operating earnings.”
Secondly, El-Erian believes that after an initial negative impact on U.S. gross domestic product, the impact on overall GDP will be mixed to slightly positive.
