Hurricanes Aftermath Will Pump Economy Experts Say
Written by Suzy Valentine on November 25, 2004
By Suzy Valentine
Florida’s economy will show significant improvement as early as March as a result of this year’s succession of hurricanes, says a local banker who lost his home during Hurricane Andrew.
Although some businesses will feel the pinch, the economy in general will benefit from a phenomenon known as the Jacuzzi effect, said Doug Sawyer, executive vice president of Coral Gables-based BankUnited whose house in south Kendall was a casualty in 1992.
"Prices in real estate will fluctuate as people come into money and upgrade or rebuild," he said. "This creates pressure in pricing."
"I lived through that," said Mr. Sawyer. "I would say it takes an individual six months to a year to recover from having their home blown away."
Economists have coined the expression to reflect the tendency that people who rebuild will upgrade – for instance, pass on a plain bathtub and buy a fancy hot tub. The phenomenon, recognized for decades, started as the more modest broken-window effect.
Though the hit this year has not been as devastating as Hurricane Andrew was 12 years ago and though insurers were better-prepared, Mr. Sawyer said he anticipates a surge in activity in affected areas on the Gulf Coast that would filter through to Miami-Dade County.
"I don’t think the effects will be so dramatic, as the damage is not nearly so extensive," he said. "As individuals got their insurance checks in 1992, deposits increased from 20% to 40%. This time, I think deposits will be up 10%."
This he attributed to a more cautious approach by the insurance companies, which 12 years ago couldn’t assess damage accurately in the more inaccessible storm-ravaged areas and paid out generously.
"They are a little more judicious now. In Andrew, some policyholders got more than they needed to cover the deficit," he said. "Now they’ll be reimbursed on a repair-and-replace basis only. Now we have higher deductibles, so there’s less disposable cash than 12 years ago."
"Benefits will trickle down to Miami-Dade, though – recovery business services, roofers and suppliers," Mr. Sawyer said. "They may have insufficient resources in Port Charlotte."
He said he is surprised that more people haven’t left the state after the storms.
"A lot of people moved north to Broward from Dade, and we saw a lot of flight out of Homestead from people hoping it was a once-in-a-lifetime event," he said of Hurricane Andrew. "On the Gulf Coast, the retirees are perhaps more likely to say, ‘Perhaps Arizona.’ "
Michael Connolly, chairman of the department of economics at the University of Miami, said smaller businesses will be hurt in the aftermath of the current hurricane season.
"I was here during Hurricane Andrew in 1992. We had tremendous destruction of property and disruption to economic activity," said Mr. Connolly. "Conversely, there was a flurry of activity in construction.
"What was surprising was that the state’s economy actually rose that year despite the disruption and destruction," Mr. Connolly said. "South Miami was reeling for a month. That’s how long the emergency reserve guardsmen were in place. What is surprising is how quickly the economy overshoots after that kind of disaster.
"I have recently visited Port Charlotte, which bore the brunt of Hurricane Charlie," he said, "and there is a tremendous amount of building going on there. The condos and developments will be open in a month or so."
But he said there would still be losers, as the phenomenon prompted an exchange of wealth that would force some smaller companies out of business.
"Certain service sectors lose a great deal, like the restaurants. Those that insured against wind damage will suffer, but if you were insured, you win," Mr. Connolly said. "Suppliers do well, whether it’s concrete, lumber or nails."
John Burford, economist with the International Bank of Miami, said extension of credit for unforeseen expenses that most radically impacts the economy.
"You make money by extending credit," he said. "People spend more, and it is unplanned expense, but I’m sure that this frenzy won’t see spending exceed $20 million."
Hotels have benefited during the storms, Mr. Burford said. "The victims moved into hotels," he said. "That increased spending when they couldn’t return to their homes."
Mr. Burford said older and poorer people suffered the most from the storms. "They are often the worst-hit. Some retired folks thought they’d do the prudent thing and paid for their homes outright. They didn’t have a mortgage and they weren’t obliged to get insurance, so some of them didn’t."