Blackout Won't Dim Economy

But lost tax revenues may haunt state and local governments

By David Wyss and Rick MacDonald

We expect little direct impact of the Northeast blackout on the economy. Business closures were too short to significantly cut spending or production. Production losses can be made up, especially given the low production levels in August because of vacation schedules.

Services usually have the biggest effect. Airlines lost about a half-day of flying in the Northeast, but most of those customers should catch flights today or tomorrow. Restaurants were shut out Thursday, since they couldn'tcook without electricity. Personal observation suggests most of that shortfall will be made up on the bar business.

The biggest losers may be state and local governments, particularly New York. The New York City transit system will lose about 1-1/2 days' worth of fares. Emergency overtime will add to costs, while the lost sales will cut tax revenue. It seems unlikely to loom large relative to other fiscal woes, but the loss is not trivial.

In the longer run, there will be added investment in the utilities sector to increase the reliability of supply, and also to speed up anti-terrorism measures. Until we know exactly how this blackout happened, it is premature to suggest how much this will cost.

However, the answer is clearly more money than we expected to spend in utility investment. If it turns out to be mostly an electronics problem, the cost will be less than if we need added transmission or generation capacity.

Wyss is chief economist for Standard & Poor's; MacDonald is a senior economist for MMS International

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