Economists find silver lining to Irene’s storm clouds

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David Kotok, chairman of the institutional money management and research firm Cumberland Advisors, in Vineland, is upping his fourth-quarter 2011 forecast for the nation’s gross domestic product in the wake of Hurricane Irene.

David Kotok, chairman of the institutional money management and research firm Cumberland Advisors, in Vineland, is upping his fourth-quarter 2011 forecast for the nation’s gross domestic product in the wake of Hurricane Irene.

Focusing on the New Jersey impact, Rutgers University professor Joseph J. Seneca, of the Bloustein School, said Irene “is certainly a hit to the state economy and to the regional economy, and it’s coming at as time of overall weakness that has been indicating a slowing economy.” But he said New Jersey’s economy is resilient and huge — $438.7 billion in gross state product in 2010, with a work force of about 4 million — and does not appear to have suffered devastating infrastructure damage.

Kotok had been forecasting U.S. GDP growth of 1 to 1.5 percent, and is now raising that to between 2.5 to 3 percent.

“Billions will be spent on rebuilding and recovery,” Kotok said. “That will put some people back to work, at least temporarily. We speculate that Washington may set aside the usual destructive and divisive partisan political wrangling and act in the interest of the nation. That means there will be a flow of federal financial assistance to the disaster areas.”

Kotok said the rebuilding effort “will be accomplished with low inflation and very low interest rates.” He said the earthquake and hurricane rebuilding spend will be in addition to a recovery already under way in the manufacturing sector. The Japan earthquake subtracted about a half point from GDP in the second and third quarters, and the rebound will occur in the fourth quarter, he said.

“We believe that Q4 economic measures will become a positive surprise to the gloom and doom purveyors who are forecasting a severe recession by year end,” he said.

Seneca said New Jersey has suffered “significant commercial business losses” from Irene that won’t entirely be covered by insurance and disaster relief. The days before the storm saw “a spike in consumer spending as everyone went out and bought supplies, which helped the Home Depots and hardware stores and supermarkets — but some of that is borrowed from future” consumer spending. And Irene deprived the Jersey Shore and casino economies of at least an entire weekend’s revenue in the peak season, Seneca said.

“There will be another spike in spending as the rebuilding and insurance payments and relief comes in,” Seneca added. On balance, Irene “is a hit and a push in the direction of a weakening economy.”