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Post-Sandy Rebuilding May Be $240 Billion Economic Boost

New York — John Cataneo is working his 20 employees overtime and still can’t keep up with demand from customers who need plumbing repaired after superstorm Sandy. He says he’s hired two new workers and may need more.

“We’re just not getting to some people that are asking for help,” said Cataneo, co-owner of Gateway Plumbing & Heating in Manhattan. “But we’re doing the best we can.”

Cataneo’s experience shows how the storm is giving the Northeast — and the rest of the country — an economic boost that may eventually surpass the loss of business it caused. Reconstruction and related purchases and hiring may range from $140 billion to $240 billion and increase U.S. economic growth by 0.5 percentage point next year, assuming $50 billion in losses, according to Economic Outlook Group a Princeton, N.J.-based forecasting firm.

“Construction costs to rebuild all that was lost will be more than simply replacement because a lot of the work will also involve fortifying structures,” said Bernard Baumohl, chief global economist at Economic Outlook. “We’ll see construction ramped up, and that’s going to bring in jobs and an increase in demand for material of all sorts, and that’s going to further stimulate the economy.”

Estimates of insured damage caused by Sandy range from $7 billion to $25 billion. When lost wages and sales are added, the total comes $50 billion, according to Oakland, Calif.-based catastrophe risk modeler Equecat Inc. — a figure that may be recouped next year as repair and reconstruction efforts spur new building and sales of household goods.

Sandy may reduce economic growth by 0.25 percent to 0.5 percent in the fourth quarter after it disrupted industrial production, retail sales and employment, according to economists at Goldman Sachs. Most of the reconstruction will take place in the first quarter of 2013, adding as much as half a point to growth, according to a Nov. 21 note to clients. The stimulus is likely to last longer. Insurance claims payments and government funds typically boost the economy for 18 to 36 months after a natural disaster like Sandy, said Jeff Burchill, chief financial officer of FM Global in Johnston, R.I., a policyholder-owned insurer that writes coverage for businesses.

“You get a lot of reconstruction and construction that otherwise would not have occurred,” Burchill said in a phone interview.

Reconstruction following a storm has an effect similar to a government-funded stimulus program, said Gary Schlossberg, a San Francisco-based senior economist at Wells Capital Management, which oversees about $331 billion.

“It’s certainly a form of stimulus, no doubt, and the ripple effects of the spending could leave you further ahead than where you were at the start before the storm,” said Schlossberg. “The administration wouldn’t want a hurricane to be a source of stimulus because the costs in losses and suffering outweigh the benefits.”

President Obama last year proposed the American Jobs Act, which would have cut payroll taxes for workers and employers, provided aid to states for schools and emergency workers and increased spending on public-works projects. The $447 billion package was blocked by Senate Republicans.

Economic benefits of the storm will come as homes are repaired, rebuilt and refurnished, according to David Crowe, chief economist for the Washington-based National Association of Home Builders. Buyers of new homes spend an average of $8,000 on furniture, appliances and landscaping, he said.

The economic boost from housing construction “would take place over several years,” Crowe said, based on the experience of Hurricane Katrina, which struck the Gulf Coast in 2005. “And it wouldn’t start until sometime next year out of the need to plan for what remodeling and construction the homeowner wants to make.”

Sandy made landfall Oct. 29 near Atlantic City, N.J., and killed more than 100 people in 10 states. The worst damage was concentrated around New York City and the New Jersey coast, one of the most densely populated regions of the country.

The storm caused more than 20,000 flights to be canceled and left about 8.5 million homes and businesses from South Carolina to Maine without power. In New York, a record storm surge that flooded road and rail tunnels caused the first two- day shutdown of U.S. stock trading for weather since 1888.

With reconstruction underway, companies likely to see immediate sales gains include Atlanta-based Home Depot Inc., the largest U.S. home-improvement retailer, and next-largest rival Lowe’s Cos. of Mooresville, North Carolina, said Steve Blitz, chief economist at ITG Investment Research Inc. in New York.

Joe Molaro, owner of Jolad Construction, spent about $500 to buy cement board and adhesive at a Lowe’s store in Toms River, N.J. He estimated repairs to his home and two rental properties he owns will total about $120,000.

The rebound after Sandy isn’t a sure thing, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pa. Economic output initially will slump by about $20 billion because “airlines don’t get those flights back and restaurants don’t get those meals back,” he said.

Next year, “we’ll get some of that back as businesses restart like a lot of the manufacturers who shut down, then we have reconstruction and we get most of that back,” Zandi said. “Whether reconstruction gets GDP back above where it would have been otherwise depends on the insurance money and government aid and how people use it.”

New York Governor Andrew Cuomo is asking the federal government for $30 billion in aid for the third most-populous U.S. state. New Jersey Governor Chris Christie has not yet released a damage estimate. State officials have said that they won’t be done tallying the storm’s damage until next week.

Richard Anderson, president of the New York Building Congress, an association of real-estate developers and construction-industry executives and labor groups, predicted a burst of employment and contracts.

“The building trades are fully engaged - we’re at full capacity now,” Anderson said. “There’s more than 20 million square feet of office space in Manhattan that’s not functional now, so repairs will have to be made. It will take purchases and installation of new equipment.”

In New York, Cataneo says Gateway Plumbing’s first new hire since Sandy started on Nov. 5, and another will join Dec. 5. His co-owner and brother, David Cataneo, said they may need additional help, especially from people with specialized skills, depending on how much Sandy-related work continues to come in.

“When you’re dealing with gas-fired equipment, boilers and water heaters and stuff, you really can’t hire laborers,” John Cataneo said in a phone interview. “You’ve got to hire people who kind of know their way around the equipment.”

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Kearns reported from Washington. Contributors: Prashant Gopal and Brian K. Sullivan in Boston, Susanna Pak and Henry Goldman in New York, Stacie Sherman and Elise Young in Trenton, N.J., and Michelle Jamrisko in Washington.

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