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Originally published Friday, May 27, 2011 at 6:27 PM

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Disasters' effect on U.S. economy

The tornadoes and floods that have devastated parts of the South and Midwest have also hammered the local economies — flooding farmlands, suspending factory work and disrupting energy production.

The Associated Press

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WASHINGTON — The tornadoes and floods that have devastated parts of the South and Midwest have also hammered the local economies — flooding farmlands, suspending factory work and disrupting energy production.

Yet for the U.S. economy overall, the damage will likely be scant. At most, the disasters might knock one-tenth of 1 percentage point off national economic growth in the April-June quarter, Wells Fargo economist Mark Vitner estimates.

"It's so small, you aren't going to notice it," said Patrick Newport, an economist at IHS Global Insight.

Others caution, though, that the tornado season hasn't ended yet, and the hurricane season has yet to arrive. Further major disasters could begin to weigh on the U.S. economy.

Early forecasts estimate that the economy will have grown at a 2.5 to 3 percent annual rate in the current April-June quarter. That's a relatively weak pace that wouldn't spur robust job growth. Still, it's above the 1.8 percent growth the government reported Thursday for the January-March period. The natural disasters haven't led economists to reduce their estimates for April-June quarter.

"This is a very extreme year," said Tom Larsen, a senior vice president at Eqecat, a firm that estimates the impact of catastrophes for insurance companies and government agencies. "If it were to stop right now, it would be a once every 25 years' or every 50 years' occurrence."

But Larsen doesn't expect it to stop. "There will be more tornadoes and more property damage," he said.

Typically, damage caused by tornadoes is more concentrated than damage from powerful hurricanes, such as Katrina, economists say. The tornado that devastated Joplin, Mo., on Sunday probably won't slow the overall state's economy very much, said Ben Kanigel, an associate economist at Moody's Analytics. That's because Joplin accounts for only about 2 percent of Missouri's economic output.

Larsen estimates the Joplin twister, the deadliest in the United States in more than six decades, and the tornadoes in late April that damaged parts of Alabama and six other Southern states could cause more than $8 billion in losses. His firm hasn't yet made a similar estimate for the Mississippi flood.

Though a blow to the local areas, $8 billion in losses would hardly make a dent in a national economy that produces about $15 trillion in goods and services every year. The U.S. is the world's largest economy.

The economy is measured by the gross domestic product. The GDP tracks only what the economy produces; it doesn't account for wealth or property. So if a tornado destroys a factory, the value isn't counted in GDP. Only its lost output is. Likewise, the loss of a house and other personal property isn't reflected in GDP.

Yet rebuilding from a disaster can add to GDP, because reconstruction would boost output. Construction firms rebuild homes and factories. And consumers replace lost cars and appliances. That's why analysts predict any loss of economic output in the April-June period would be reversed in the July-September quarter.

"Despite the fact that Joplin and Missouri are clearly worse off, we don't subtract this destruction from GDP," said David Mitchell, an economist at Missouri State University. "But we do add people's work to recreate the infrastructure, homes and buildings that were destroyed. In this sense, GDP can be a poor measure of a country's economic well-being."

The disasters have had devastating consequences for many communities. The American Farm Bureau Federation estimates that nearly 3.6 million acres of farmland are either under water or have been damaged by the Mississippi River flood.

John Michael Riley, an agricultural economist at Mississippi State University, estimates the flood has destroyed up to $1.5 billion of corn, wheat and other crops.

Still, some industries haven't been hit as hard as analysts had feared. Many had economists worried several major oil refineries near New Orleans might be flooded and shut down. But that didn't happen.

"The worst fears have not been realized as of yet," said Andy Lipow, president of Lipow Oil Associates, a Houston-based firm.

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