Will Extreme Weather Events Have A Measurable Impact On The Economy in 2012?

The extreme weather in 2011 is having a lasting negative impact on the U.S. economy.

• Thailand flooding has led to a shortage of hard drives hurting technology companies
• There is a shortage of seed corn due to last year's drought
• Snow drought in December is hurting ski and snowmobile destinations this month
• Property insurance rates have been raised due to high cost of last year's damage
• The USDA indicates that food at home costs increased by 4.25-4.75% last year and are projected to increase by another 3-4% this year. Much of this increase in costs is extreme weather related.

Hopefully, last year was just an aberrational year for extreme weather events. During 2011, there were 12 weather-related disasters in the USA with damage over 1 billion dollars each. The total damage from these disasters exceeded $52 billion with additional costs from smaller disturbances. These disasters included hurricane Irene, blizzards, tornadoes, drought, flooding and wildfires.

Of note, tropical storm activity in the Atlantic has been elevated during the last three years, but only one hurricane has struck the U.S. mainland since 2008. An increase in hurricanes hitting the U.S. is particularly worrisome. Also, the lack of early winter snow could foreshadow another year of expensive droughts.

The impact of weather on the economy is reinforced by a  research study that indicates that routine weather events such as rain and cooler-than-average days can add up to an annual economic impact of as much as $485 billion in the United States. The study concludes that the influence of routine weather variations on the economy is as much as 3.4 percent of U.S. gross domestic product. Obviously, extreme weather events adds to the cost of weather variations.

Conclusion

Few financial forecasts factor in the potential for another year of extreme weather events to harm the U.S. economy. However, another year of extreme weather could easily cost the U.S. the loss of 1% or more of GDP. Extreme weather events may be another head wind faced by the U.S. economy in 2012.

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