Discuss as:

Sandy's storm surge poses costly threat to region's economy

Lucas Jackson / Reuters

A woman and child walk through an aisle, emptied in preparation for Hurricane Sandy, in a Wal-Mart store in Riverhead, N.Y. The biggest threat to the economy will come from flooding, experts say.

It’s not the wind, it’s the water.

The long-term, potentially catastrophic damage from Hurricane Sandy bearing down on the Northeast will most likely come from the unusually strong and potentially deadly storm surge that forecasters say will be much larger than past storms to hit the region.

"If the forecasts hold true in terms of the amount of rainfall and the amount of coastal flooding, that's going to be what drives up the losses and that's what's going to hurt," said Susan Cutter, director of the hazards and vulnerability research institute at the University of South Carolina.

But it's not all bad news, experts say. What the economy loses in the short term can often made up in the cleanup and the rebuilding afterwards.

The surge is expected to threaten inland and coastal flood zones across most of the Northeast, including all of Maryland, New Jersey, Delaware and Connecticut; most of Pennsylvania, New York, Massachusetts and Vermont; and parts of northeastern Ohio, eastern Virginia, North Carolina, and western New Hampshire. About 50 million to 60 million people, along with trillions of dollars worth of property, are in the path of the storm. 

At Category 1, Sandy's winds are not unusually strong for a hurricane. The unusual energy propelling the surge, forecasters say, will come from storm’s large size, as it churns up a wide swath of ocean along with higher-than-normal tides that typically accompany Monday's full moon.

The result is peak surge heights forecasted at 4 to 8 feet along the coast from North Carolina to Cape Cod. The surge may climb to 11 feet in bodies of water that concentrate its impact, including the Long Island Sound, Raritan Bay, and New York harbor, according to the National Weather Service.

A tidal surge carries much more force, and produces more damage, than wind because water is so much heavier. The destructive power is compounded by the momentum of heavy objects like cars, boats, trees and other debris.

In Manhattan, where flood walls are five feet above mean sea level, a near-record surge of 11 feet could inundate parts of the subway system, according to Air-Worldwide, an insurance consulting firm. (All public transportation in the region was suspended Sunday afternoon.  New York Gov. Andrew Cuomo said two major arteries into the city -- the Brooklyn-Battery Tunnel and the Holland Tunnel -- would close as of 2 p.m. Monday.)

The financial markets in New York also closed Monday, the first weather-related shutdown in 27 years. While the closing, by itself, is not expected to impact stock prices, uncertainty about the storm's aftermath could weigh on investors.  

CNBC: How Hurricane Sandy will affect investors

With just a week left before the election, the storm also could leave political fallout in its wake, especially if the damage is severe and the response by President Barack Obama administration's draws criticism from his opponent, former Mass. Gov. Mitt Romney. 

The storm has yet to make landfall, so the potential cost of property damage is difficult to estimate. But the total value of insured coastal properties vulnerable to hurricane damage, in New York state alone, amounts to some $2.7 trillion, according to the Insurance Information Institute.

Some 90 percent of natural disasters in the U.S. involve flooding, according to the National Flood Insurance Program. Though mortgage lenders require property owners to buy flood insurance, there were some 5.7 million flood insurance policies in force in 2010, according to the latest data available from the III.

For those with policies, not all flood-related losses are covered. Total estimated losses for Hurricane Katrina came to $46.6 billion, but flood insurance payouts came to less than half that amount.

Analysts say that, with $500 billion of capital, the global insurance industry is financially prepared to weather the storm.

Wider economic losses are more difficult to estimate, but with offices, factories, refineries, stores, restaurants and transportation shut down along the eastern seaboard, the storm has already cost millions of dollars in lost output, productivity and consumer spending.

That impact likely will be reversed once the clean-up and rebuilding begins, according to John Challenger, CEO of Challenger, Gray & Christmas, an employment firm.

“We will probably see an employment surge in construction, skilled trades and other professions needed to help repair the damage,” he said. “There will also be an increase in business and consumer spending and companies and homeowners replace damaged equipment, household items, etc.”

Some of that pickup in spending is already happening.

“Obviously there's a lot of cash registers ringing and our stores are very, very busy,” said Douglas Spiron, head of Home Depot’s storm response. “It's good for the economy, absolutely.” 

More business news:

Follow NBCNews.com business on Twitter and Facebook

CNBC's Steve Liesman, weighs in on the potential economic impact of the storm.