It hasn’t been this bad in 200 years, blare the headlines.
Twenty million Americans are on flood watch.
Another 65 million could be impacted.
Parts of the eastern shore had up to 12 inches of rain. Others expect up to 15 inches.
Flood warnings have been issued up and down the coast with threats of 35 mph wind gusts.
Increased threats of landslides and currents have posed significant problems.
Even with the storm tracking well offshore, its impact will be felt through the economy, too. Potentially delaying the Feds next action.
Joaquin could alter Fed path
The storm promises to be a disaster even if it never makes landfall, threatening to cost the U.S. billions of dollars.
“There is going to be serious catastrophic flooding from North Carolina to Massachusetts,” notes Mike Smith, a senior vice president of Accuweather Enterprise Solutions, as quoted by Forbes. “This is going to disrupt the economy regardless of [whether] Hurricane Joaquin makes landfall.”
The potential damage could reach well into the billions from property damage to manufacturing disruptions.
And it may just be enough to prevent the Fed from raising rates this year.
As you’re aware, hurricanes and winter weather events damage or destroy physical assets like stores, housing and infrastructure. They can interrupt the flow of goods and services in a quarter, as measured by GDP.
During such events, economic activity can be depressed, greatly impacting the health of the economy and the ways in which agencies deal with them.
In late 2012, for example, the Fed launched its QE3 program, buying $40 billion in mortgage-backed securities each month.
By October, Hurricane Sandy caused more than $70 billion in property damage.
The storm disrupted commerce in one of the county’s most populous regions, destroying billions of dollars worth of property. The flow of goods and services was delayed.
Economists warned the storm could reduce GDP by 0.6% in the fourth quarter.
By December 2012, the Fed expanded its QE3 program to $45 billion.
In 2014, the White House blamed “unusually severe” weather for the “startling-low increase in GDP, noting there had been record cold temperatures and intense snowstorms.”
The economy contracted for the first time in three years because of severe weather.
Then just this year, the small first quarter decline in GDP was driven by events such as “unusually severe weather” again.
Granted, the storm won’t be the only reason the Federal Reserve chooses to delay an increase in interest rates. The devastating headwinds of a poor jobs report may do the trick, too.
The U.S. added just 142,000 jobs in September coming in far below expectations for 200,000. Revisions to August were poor, as well. Gains for the month – initially 173,000 – were revised to 136,000.
Those numbers alone may leave the Fed with no choice but to remain with its accommodative monetary policy language.
What makes the jobs report worse is that the labor participation rate has now fallen to 62.4% -- the lowest read since 1977 -- as another 350,000 Americans leave the labor force.
Fortunately, the jobless rate did remain at 5.1%.
Your editor doesn’t believe the Fed has room to do much this year with interest rates with such headwinds.
Bottom line -- be prepared.