Monday, August 29, 2011

Yay for Earthquakes and Hurricanes

Aren’t earthquakes and hurricanes great (so great that maybe there is no way they can "only get better")?  For one, they are an amazing excuse to not get your work done.  How could you possibly be expected to come into work when you were stuck in an earthquake, hurricane, or other natural disaster.  (Bonus points for being stuck in one of each in the same week).  Natural disasters put “my dog ate my homework” to shame.  Not only do such events get you out of work, but they even can get you the day off – and you get paid to sit home without taking any leave!  Not even Federal holidays are guilt-free stay-at-home-and-do-nothing days.  Almost always someone insists on celebrating something, which usually involves you having to take a shower, get dressed, and talk for an hour with your awkward cousin while trying to watch the game over their shoulder.

Another great thing about earthquakes and hurricanes: they are equivalent to stimulus packages without the need to wait for them to get passed in Congress (nobody can argue with spending and investment resulting from natural weather events).   The businesses responsible for producing the goods and services we rely on are not having as good a summer as we are (they should have invested in beach week).  But these companies are important for our country’s economic well-being (not to mention our wallet’s well-being).  If companies aren’t producing stuff, or making money, then they can’t afford to pay us.  If they can’t pay us, then we can’t buy their stuff, so less is produced and the cycle continues.  In this ugly scenario, our future Christmas and summer getaways could be in jeopardy.  

As mentioned in the previous posting of this blog, manufacturers in the NY and Philly area are not anticipating a good August.  To echo this sentiment around other regions of the country, an index released today indicates Dallas area manufacturers were quite pessimistic about business in August, with a measure of -11.4 compared to -2 in July (anything below “0” indicates business is decreasing).  Last week, a measure of Richmond area business conditions also deteriorated in August, coming in at -10 compared to -1 in July.  Only Kansas reported positive growth in August (at a no-change over July’s “3”).  At least the need for infrastructure improvements and relief supplies resulting from natural disasters can increase demand for U.S. manufacturers (good for business).  

Natural disasters can also boost the economy through “induced” spending (we need water and flashlights, and 100 each thank you).  The spending coming out of natural disasters will help the already big boost you spenders put into the economy in July (didn’t you treat yourself to a nice summer).  Data released today shows consumers like you increased spending by 0.8% in July over June, after seeing a 0.2% decrease in spending in June over May.  But taking a closer look shows “real” disposable income, our spending money after adjusting for price increases, declined by 0.1%.  A decline in available funds may have led to a more modest spending future (and economic growth), but thanks to our earthquake and hurricane, spending may have been induced that would not have been otherwise.  Did you say you only had one pack each of A, AA, AAA, C, and D batteries? Uh-oh.

You may now be thinking that natural “disasters” seems a little harsh to describe these naturally occurring metrological events.  What if we called them natural “stimulators” instead, after the economic bump they provide (that's PR genius, right)?  Okay, surely earthquakes and hurricanes aren’t all rosy.  No other stimulus package can cause such widespread destruction to the stuff we already worked hard to get.  But as with most negative things, at least there is some silver lining, however thin. 

(The Federal Reserve, Bureau of Economic Analysis)

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