Although the total damage from Hurricane Ida, which rampaged a trail of destruction from New Orleans to New York City, is still being tabulated, there is little doubt that it will have a significant impact on the US economy this year. After all considerations, AccuWeather estimates that the price tag for Ida’s damage could reach $95 billion. And although that’s a pretty big number, it would rank Ida as only seventh on the list of most-devastating hurricanes over the last 20 years.
For example, Superstorm Sandy, number three on that list with total economic impact of $210 billion, caused more than $37 billion in damages to New Jersey alone according to The Rutgers School of Public Affairs and Administration. Those damages were split with $7.8 billion for residents, $3.6 billion for businesses, $2.2 billion for municipalities, and $23.5 billion to the state for hazard mitigation. This massively dampened NJ’s economy. Furthermore, even though Sandy hit nine years ago, numerous state residents remain displaced from their former homes.
We used to call these events “100-year storms” or even “500-year storms”. I’m not sure what we’ll call them now that they have become nearly annual occurrences. Empirical evidence shows that large-scale natural disasters, “acts of God” in insurance terms, are happening more frequently and on a greater scale. And it’s not just hurricanes. We’re also seeing devastation from tornadoes, droughts, earthquakes, tsunamis, mudslides, and wildfires.
Data from the National Centers for Environmental Information (NCEI) show that, between 2010-19, there were 119 climate- and weather-related events that cost $1 billion or more, causing an average of $80.2 billion in damages per year. The decade before that (2000–09) saw only 59 billion-dollar events in the US, at an average cost of $52 billion. And the 1990s saw even fewer considerable weather crises: 52, which cost an average of $27 billion per year. So, not only are we experiencing these events more frequently, but their cost is continually rising.
This is in line with data collected by the National Oceanic and Atmospheric Administration (NOAA) over the last 40 years, which shows that the frequency of extreme weather events is rapidly increasing. NOAA says there were 22 such events in 2020, the highest in history. Additionally, over the last five years, there have been on average 16.2 extreme weather events annually. Between 1980, when NOAA started collecting data, and 2020, the annual average was 7.1 events. This year looks like more of the same since we’ve already had numerous extreme weather events each costing more than $1 billion, and hurricane season is far from over. Similarly, wildfires continue to rage across vast swaths of several states – fires have already consumed nearly five million acres in 2021 but we are still in the third quarter. How will the economy handle these natural crises?
Unfortunately, it doesn’t look like things will get better anytime soon. Last month, the U.N. Intergovernmental Panel on Climate Change (IPCC), in its Sixth Assessment Report, called its findings “a code red for humanity” and concluded that the greater frequency and intensity of extreme weather events can be attributed to climate change with a high degree of certainty.
With disasters like this approaching biblical proportions, we’re obviously seeing economic distress in addition to horrible losses in human life and property. This is so not just for people directly affected by a weather event, but also for companies and governments that get pushed into distress and even bankruptcy.
Puerto Rico was already in bankruptcy due to its $123 billion in liabilities when Hurricane Maria, second on the AccuWeather list of the most expensive weather-related disasters, struck in 2017. That storm killed an estimated 3,000 people and knocked out power across the island, in some cases for close to a year, with more than $30 billion in damages. Maria saddled the island and its restructuring professionals with a nearly insurmountable task of addressing an infrastructure in shambles even as a smaller workforce remained due to long-term human exodus. Unfortunately, with additional devastating storms and the COVID-19 pandemic, the task of restructuring Puerto Rico became even more difficult along the way.
In addition to hurricanes, we’ve seen an increase in the number of massive wildfires over the last few years. Several such fires forced Pacific Gas & Electric
PCG
into a massive Chapter 11 in 2019 in what at the time was called “the first climate change bankruptcy”. A report from Columbia University’s Center on Global Energy Policy emphasized that wildfires could become as much as 900% more destructive by midcentury, which should set off some alarms, particularly with so many fires currently raging this year.
The proposed Biden $3.5 trillion infrastructure plan seeks to address some of the issues connected to climate change and extreme weather events, although how much of the proposal actually makes it into law remains to be seen. But relatively minor improvements to infrastructure may help alleviate major catastrophes. Adie Tomer, a senior fellow at the Brookings Institution’s Metropolitan Policy Program, has been widely quoted stating that $400 million in investments in weatherized improvements to the Texas power grid could have prevented some of the worst impacts from Winter Storm Uri. Uri, which killed over 100 people in February this year, forced the Brazos Electric Cooperative into bankruptcy, while Vistra Energy suffered $1.6 billion in costs directly related to that storm.
Through it all, the US government seems to be taking on a larger and more expensive role every time. In a 2019 report, the Congressional Budget Office predicted that damage from hurricanes and other weather events would cost the federal government an estimated $17 billion annually ($11 billion in losses to the public sector, $4 billion in direct aid to affected individuals, and $1 billion in administrative expenses.) This astounding figure highlights the impact of weather-induced damage on governmental costs.
When we talk about the cost of these disasters, we usually only look at direct affects — homes and commercial buildings, automobiles, power lines, roads, and levees. However, there are also many other less obvious economic effects, including disruptions to businesses due to severe property damage or loss of workforce. The National Centers for Environmental Information estimates the damage from Hurricane Katrina at $172.5 billion, while AccuWeather, which factors in dozens of additional variables, such as the impact of people unable to work, travel and tourism disruption, as well as clean-up costs, estimates a shocking $320 billion.
The cost of climate change and the resultant frequency of extreme weather events is something investors should be well aware of going forward. It certainly adds a new dimension to the analysis of companies in certain sectors, such as utilities, travel and tourism, insurance, and natural resources to name a few. As with any event that causes distress, climate related events can create risks but also opportunities for the astute investor.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
