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Flood to take big toll on nation's economy Federal Reserve estimate of cost nears $12 billion

THE BALTIMORE SUN

As the rain keeps falling and the water keeps rising, it is becoming clear that the Great Flood of 1993 will have a considerably bigger effect on the nation's economy than seemed likely just a short time ago.

"Seems like we get bombarded with heavy rain and heavy rain; in between we get light rain," said Roy R. Arends, a farmer in Alexander, Iowa. "It's been hard to get the crops in, it's hard on equipment, it's hard on nerves. The financial impact is yet to be seen. But right now it really looks bleak."

As they survey bankers, farmers, businesses and state officials, analysts at the four Federal Reserve banks in the Midwest have been boosting their damage estimates, in some cases doubling and tripling recent numbers.

"Two weeks ago I said you weren't going to see discernible impacts" on the gross domestic product, said Edward Lotterman, an economist at the Federal Reserve Bank of Minneapolis: "That was before Iowa, Missouri and Illinois. Now I think we're getting into the Hurricane Andrew range in terms of losses."

The dollar figure that economists are putting on crop losses, property damage and lost production and sales -- for now at least -- is $10 billion to $12 billion, roughly two-thirds of the losses from Hurricane Andrew. As the figures climb, they include losses not only from areas under water but also from adjacent areas where people and businesses are suffering.

Heavy rain fell yesterday along the Missouri River, expanding the flooded area north and west into Nebraska and raising the specter of more trouble ahead. And while the Midwest is reeling from the flood, parts of the southeastern United States are feeling the bite of a drought, without a major rainfall since June 1.

In South Carolina, the worst-hit state, state Agriculture Commissioner Les Tindal said 95 percent of the corn crop had been lost, 70 percent of soybeans, 50 percent of wheat and 25 percent of tobacco. Farms in parts of North Carolina and Georgia are also suffering from the heat.

In Maryland, Gov. William Donald Schaefer has requested federal disaster relief for farmers. The governor said that state farmers .. have already suffered millions of dollars of losses and that the damage to corn, soybean, fruits and vegetables is mounting every day.

All 10 members of Maryland's congressional delegation joined Mr. Schaefer in urging that the state receive federal aid.

Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University, said, "There's going to be crop loss and poultry suffocation." But the damage is not comparable to that of a flood or hurricane, more likely to be measured in hundreds of millions of dollars, he said.

Eventually, consumers around the nation are likely to see higher prices for some foods as a result of the current damage, but the changes are likely to be moderate, far less than the sharp increases produced by the devastating drought of 1988.

Laura d'Andrea Tyson, head of the Council of Economic Advisers, said Friday that she thought the flooding and drought would add about three-tenths of 1 percent to the inflation rate next year.

She said that she expected "a serious effect on spending" this summer and added that limited resources for rebuilding from the flood would limit the stimulus to the economy after the flood waters recede.

For all the losses to property and people's well-being, most natural disasters eventually provide a shot in the arm for the national economy because the tremendous sums of money invested in repairs show up in the gross domestic product.

"A guy whose home was wiped away and a community whose major road was destroyed doesn't show up as GDP loss," said one administration economist who insisted on anonymity. "In fact, that diminution of assets shows up as a GDP gain, because we'll send a road crew out to repair the road. But that gain is a measure of what was lost."

Economists expect the negative impact of the Midwest floods to be measured in tenths of 1 percent of the nation's $6 trillion gross domestic output -- the amount of goods and services Americans turn out a year.

But the blow is still enough, said Sara Johnson, an economist at DRI/McGraw-Hill, to stall the economic expansion of the Midwest, a region that had been doing better than the rest of the nation for several years.

And statistics about the nation's economy are scant comfort to people watching their homes being swept away or to those on dry land who have also suffered.

Dwayne Crook is the sales manager at Buford Ward Chevrolet in Quincy, Ill., a dealership that sits on a bluff hundreds of feet above the swollen Mississippi River.

"A lot of our business comes from Missouri," he said. "They just can't get here. The bridges are down. There's water over the roads." Sales, which have been very strong so far this year, are down 30 percent since the flooding started.

With flood water spread out over 8 million acres and parts of eight states, and with bridges, roads and railbeds out of commission, the disruption of everyday economic life will linger.

"This thing has been going on and on and on," said Wesley Ooms, an assistant vice president at the State Farm Insurance Co. "You really can't do anything until water's receded."

The flood and rain also have kept buyers out of stores, and some factories have been shut. The Des Moines Chamber of Commerce said the loss of business in that city alone, where water had to be shut off after the waterworks were flooded, has been estimated at between $200 million and $500 million.

The flooding has halted homebuilding in some areas, and the rain has delayed it in others. The Midwest, which usually receives about 7 percent of all permits for housing starts, will almost certainly have lower than usual numbers in June and July. And it will take a while before normal activity can resume.

While rebuilding after the flood will provide some stimulus, it is likely to fall short of the aftermath of Hurricane Andrew 11 months ago, when insurers paid more than $16.5 billion in claims and Washington stepped in with federal disaster aid.

But where Hurricane Andrew demolished homes, the flooding and drought are devastating crops. And lost crops are simply never made up. Crop losses from the flood could reach $5 billion.

Among the many homes flooded, relatively few are insured. The State Farm Insurance Company, for example, said it had received fewer than 400 claims for flooded homes and fewer than 400 for autos damaged by the water.

Few private homeowner policies provide flood protection, and Donald Collins, assistant administrator of the Federal Emergency Management Agency, said only about 15 percent of the 30,000 to 40,000 homes damaged by flooding have federal flood insurance.

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