Frequently Asked Questions

Guidelines for Citing BEA Information | ID: 55 | Created: Dec-05-2005

How are GDP and related income measures of the national accounts affected by a disaster?

Disasters--such as Hurricane Katrina, the terrorist attacks of September 11, 2001, and other major catastrophes--affect economic activity because (1) production is interrupted, (2) structures, equipment, and other assets are damaged or destroyed, (3) transactions, such as payments of insurance benefits or government disaster relief, take place as a result of the damages incurred, and (4) the structures, equipment, and other assets that are damaged or destroyed must be replaced, often using funds from insurance benefits or disaster relief.

GDP is a measure of the nation's current production of goods and services; as such, it is not directly affected by the loss of property (structures and equipment) produced in previous periods. GDP may be affected indirectly by the actions that consumers, businesses, and governments take in response to disruptions in production or to the loss of property, but these responses are generally not separately identifiable, and they may be spread out over a long period of time. For example:

  • Rebuilding activity, which may occur over many months following a disaster, will typically be reflected in the regular source data that are used to estimate residential and nonresidential investment. There is no way to disentangle the disaster-related rebuilding from other construction activity.
  • Tourism and other types of consumer spending may be canceled or postponed in the face of a disaster. However, whether spending is canceled or postponed, the effects will be embedded in the source data that are used to estimate personal consumption expenditures. Again, there is no way to disentangle the disaster-related spending from other consumer spending.

As a measure of the Nation’s current production of goods and services, GDP includes the value of insurance services produced for policyholders, which is not directly affected by the payment of benefits in the wake of a disaster. (See How are insurance services measured in GDP?)

Similarly, disruptions of income generated from production are generally embedded in the data on which the estimates are based. The impact of a disaster on gross domestic income, national income, or personal income cannot be quantified because the source data record actual activity and do not attempt to separately identify the effects of the disaster.

Neither GDP nor the associated income measures are adjusted to take account of damage to, or destruction of, assets. Instead, the value of the damage to, or the destruction of, fixed assets is recorded as "other changes in volume of assets," and is presented as "disaster losses" in the addenda to NIPA table 5.1. The value of disaster-related insurance payouts is recorded as a capital transfer payment, which is presented in NIPA table 5.10.

More information on the treatment of disasters is available in the March 2009 Survey article, "Preview of the 2009 Comprehensive Revision: Changes in Definitions and Presentations".

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