The Price Of Darkness

To the people trapped in sweltering subways and left without air conditioning on a steamy August evening, the blackout hardly felt like a blizzard. But to economists, the power outage packed a punch that was largely indistinguishable from a big snowstorm. In the darkened regions, consumers hibernated for a day or so. Restaurant tables sat empty. Stores closed as electronic cash registers powered down. Office workers played hooky. But is this a lethal blow to a nascent economic recovery? "It's a nuisance and a disruption," says Mark Zandi of Economy.com, "but most of the economic activity [will be] made back up."

Not all economists believe the net economic damage of the blackout will be zero. Others who tried to put a number on the lost business wound up with estimates of nearly $1 billion, hardly a paltry sum on its own, but a rounding error in the $11 trillion U.S. economy. Despite the inconvenience posed to 49 million powerless people--far more than the 30 million affected by the '65 blackout--most experts say the economic hit will be less than that caused by the blizzard last Presidents' Day.

The reason the bottom-line impact isn't worse stems partly from the nature of consumer behavior and partly from the way the economic pluses and minuses of the blackout net out. Lucky timing also helped. Consider consumer behavior: yes, some of the purchases that weren't made on Thursday and Friday will never be rung up. Tourists visiting New York for a few days have a limited chance to eat extra meals, visit the museums that were closed or rebook tickets to "The Producers." Some passengers on canceled plane flights will simply bag their trips and take a refund. But that kind of transient spending is the exception, not the rule. Even in a nation of impulse shoppers, most consumer purchases are driven by needs that transcend the blackout. A weekday evening in the dark won't reduce demand for jeans and belly shirts among Cleveland teenagers doing back-to-school shopping. "Purchases that weren't made on Thursday, we expect them to be made over the weekend," says Scott Krugman of the National Retail Federation.

That big picture is no consolation to individual businesses that suffered. The biggest losers were restaurants forced to throw away spoiled food and small urban businesses that rely on daily streams of commuters to fill the till. Ernest Klein &Co. Supermarkets on Sixth Avenue in Manhattan sells fresh meat and dairy products. A day after electricity returned, boxes littered the store aisles from restocking the food it had thrown out the previous day. "We tried to seal everything, keep it fresh," said store supervisor Jim Hopkins. "But it got to a point when it had all been out for too many hours." He estimates the loss at $60,000 or more. Governments also suffered: with many city and state budgets in the red, overtime for police and emergency workers doesn't help balance the books.

But economywide, some of those losses were offset as companies moved quickly to serve their newly unplugged customers. Moments after learning of the blackouts, Home Depot execs began shipping more than 5,000 home generators (price: $399 and up) to stores in New York and Detroit. Home Depot's supply gurus contacted Eveready to boost orders for batteries and flashlights. And since most Home Depot stores are equipped with their own emergency generators, most remained open.

For some companies that had to close, the downtime may actually be helpful. General Motors shut 17 of its 60 North American plants on Friday; Ford shuttered 23 of its 44. But since carmakers have been slashing production all year, the shutdowns may help reduce dealers' inventories. And even as production dipped, the blackout caused a leap in demand for other services. When thousands of GM employees streamed out of the company's downtown Detroit headquarters Thursday afternoon, they confronted a massive traffic jam, so many rushed to a Marriott hotel, which quickly sold out.

The timing of the power failure was also about as good as it gets. The lights went out just after the New York Stock Exchange had closed, limiting the potential for a panicky sell-off. When the market opened Friday, investors were pleased the power problems weren't caused by terrorism and seemed quickly fixable, so they drove the Dow up 11 points. Even though many offices closed, one economist wondered: on a lazy Friday in August, how much would workers have accomplished anyway?

If the blackouts do have a long-term economic impact, it's likely to be more positive than negative. The outages highlighted just how weak America's electrical infrastructure is, and that's likely to lead to new investments to try to prevent another night in the dark. Some market watchers are debating whether utility- or electrical- equipment stocks could be smart plays in the weeks ahead. Indeed, for some companies the blackout could bring a windfall similar to the one 9/11 delivered to security companies. "It's counterintuitive, but catastrophes often increase economic activity," says Diane Swonk, chief economist at Bank One.

For people who lived through the blackout of '03, the long-term effects could hit their psyches harder than their pocketbooks. The bar on what constitutes a "bad day at the office" can't help but be raised for folks who traipsed down 30 flights of stairs or walked miles to get home. Still, other people are left with more tangible reminders of their good fortune. On Saturday morning, customers lined up outside the Grand Slam gift shop in Times Square. The attraction? i survived the blackout T shirts; at $12.99 apiece, they sold out in a half hour. When a second shipment of 300 arrived at noon, customers crowded inside. "We lost business one day," store manager John Palh says, "but now our business has doubled." When it comes to blackout economics, one man's misery is another man's merchandising opportunity.

The Price Of Darkness | News
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