Hurricane Season Could Hit You Right in the Pocketbook

NEW YORK (MainStreet) — Batten down the hatches. This could be a bad hurricane season after all. That could have a big impact on more than your vacation plans.

Hurricane Arthur, which blew up the North Carolina coast last week, may change the forecast for this whole year, and that could have a huge economic impact.

The Outer Banks got lucky with Arthur, with local newspapers reporting nominal damage.

But down in Conway, S.C., where Len Pietrafesa has been running the HUGO hurricane outlook study at Coastal Carolina University since last year, Arthur was a wake-up call, and not just because it went right past his house.

Arthur was unprecedented, spawning off the coast of Florida early in the season and becoming a Category 2 hurricane within a few days. Most early season storms start off the coast of Africa and move west, giving people time to prepare.

The storm has forced Pietrafesa's group to re-examine an outlook for a mild season issued right before the storm came in.

When the forecast was issued, Pietrafesa told MainStreet, the center lacked data on global ocean temperatures, which turned out to be 1.3 degrees higher than ever seen for May.

"We didn't know about the 1.3 degree increase, he said. "This is going to be a very warm year, and if it's a warm year there's more energy in the ocean. You put energy into the ocean and you change the atmosphere."

He added, "It could be climate change." Pietrafesa published a paper last year in which he showed ocean and atmospheric temperatures around the world rising about 1 degree since 1880, with all natural variability taken out.

That's less than the Intergovernmental Panel on Climate Change recently estimated, but it is still significant.

If the hurricane forecast has to be revised it could have a big impact for investors, both in the stock market and in real estate. It could mean less business for tourist destinations along the coast, and damage to resorts and resort communities.

Florida alone drew 94.7 million tourists last year, and the governor estimates every 85 visitors represents one job, meaning 1.11 million jobs in that state alone are dependent on tourism numbers. If hurricanes impact those numbers, it could have an immediate impact on employment.

Last year only two storms came near the state, Andrea and Dorian. The first was mainly a rain event, the second skirted the coast and then went out to sea. Losses from a single major hurricane, like Katrina in 2006, can reach over $100 billion, and as more people live in hurricane-prone areas, those figures will rise.

It could be bad news for regional banks serving hurricane-prone areas, and in REITs that invest in such areas. Oritani Financial ORIT, a New Jersey regional bank, and Home Properties HME, which invests in homes in the Northeast, are only now recovering from Sandy's impact.

On the other hand it could be good news for investors in property insurers like Travelers (TRV), which will gain new pricing power, and in home improvement stocks like Home Depot (HD). Both are up over 25% since late October, 2012, when Sandy came ashore in New Jersey.

This is the second year for the HUGO forecast. Last year's forecast overestimated the number of hurricanes, which Pietrafesa blamed on an early estimate for Accumulated Cyclone Energy (ACE), the amount of energy storms produce. It was forecast to be much higher than it turned out to be.

This year's delay in getting ocean temperature data means the whole model has to be re-examined, he said.

"Our outlook could change considerably," he said.

A new report can be expected by July 20, and it may be revised further once ocean temperature figures for June come out.

"We may have a lot more near regional generation," Petrafesa concluded -- in other words, more storms like Arthur. Consider yourself warned.

--Written by Dana Blankenhorn for MainStreet

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