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Extreme weather is hitting parts of the US. That's bad news for the economy

2023-06-27 19:56
We've all heard Wall Street bigwigs compare the looming recession to gathering storm clouds, hurricanes, and heavy fog. But what happens when those weather events are no longer just analogies?
Extreme weather is hitting parts of the US. That's bad news for the economy

We've all heard Wall Street bigwigs compare the looming recession to gathering storm clouds, hurricanes, and heavy fog. But what happens when those weather events are no longer just analogies?

This month, extreme heatwaves in Texas and other southern states, toxic air caused by wildfires in the north and extreme storms along the eastern seaboard have caused more strife in an economy already on the brink of dropping into reverse gear.

"It hurts the economy, and it certainly doesn't provide that stability that would allow us to avoid something like slipping into a recession," said Justin Mankin, a professor of geography at Dartmouth College who focuses on the risks global warming poses to ecosystems and people.

What's happening: Over 90 million people, mostly along the east coast, were under threat on Monday as the system that produced nearly 400 storm reports on Sunday moved eastward. Another 40 million people in seven southern states fell under heat wave warnings on Monday, as the brutal ongoing heatwave in Texas fans out.

All told, at least a third of the US population is currently grappling with costly extreme weather events.

That's on top of the nine confirmed US weather and climate disaster events so far this year each with losses exceeding $1 billion (many more will likely be confirmed in the coming weeks), according to the National Oceanic and Atmospheric Administration (NOAA).

Those nine events alone have totaled about $23.7 billion in damages to the US economy, researchers found, and some analysts say that vastly underestimates the long-term impact.

In 2022, extreme weather events cost the United States about $165 billion, according to the NOAA.

Just how costly these events will end up being is still largely unknown.

"The nature of these extremes is that they propagate through our economies in ways that we don't totally understand," explained Mankin.

"We know enough to say that they're very harmful but in terms of their actual costs, and for how long those costs accumulate, that's something that we in the research community are just getting a handle on."

Heat waves in particular, he said, typically deliver a shock to the economy.

Texas already loses about $30 billion a year in productivity due to its hot climate, according to an NOAA report. They project that number will jump to about $110 billion a year by 2050 — 2.5% of Texas' economy.

Sector by sector: Extreme weather impacts the economy writ large, but certain sectors tend to suffer more than others.

Take airlines, for instance.

More than 5,000 flights across the United States were delayed or canceled Monday as powerful storms ripped through parts of the country. Flight delays often result in huge economic losses; the Federal Aviation Administration (FAA) estimated the cost of airline backups to be about $33 billion in 2019.

This spring, Southwest Airlines cited extreme weather as a growing concern for airlines after December storm disruptions cost the company nearly $1.2 billion.

"Whether it's for hurricanes or winter weather or rain, thunderstorms, we now need to have a planning process that includes outcomes that are beyond what we've seen before. That's a big takeaway for us," said Southwest COO Andrew Watterson.

Agriculture, construction, tourism and renewable energy sectors also tend to feel the brunt of extreme weather events.

The consumer cost: In Texas, power costs have increased by 100% in some instances as the record heat wave drives demand higher, adding considerably to household costs.

Flood insurance and home insurance have also become necessary but often unattainable. Experts fear the cost of insurance will only get worse as climate change intensifies both hurricanes and extreme rain events.

Major insurance companies have already virtually pulled out of the Florida market, leaving homeowners paying premiums nearly four times higher than those paid elsewhere in the country. Hurricane risk is part of Florida's problem — Hurricane Ian last year was the most expensive storm ever to hit the state.

"We're really poorly adapted to the extreme weather and climate that we have right now," said Mankin. "And that also goes for our economy."

Chaos in Russia could mean trouble for the global economy

Russia's economy is much smaller than America's and China's, but it plays an outsized role in shaping the world economy, according to my colleague Mark Thompson.

That's because it's still one of the biggest suppliers of energy to global markets — including China and India.

Analysts at Rystad Energy said bouts of geopolitical uncertainty in major oil-producing nations over the past 35 years — ranging from civil unrest to coup attempts, armed conflicts and changes of governments — had on average added 8% to the price of oil in the five days after the triggering event.

That uncertainty was there as disaffected Russian mercenaries marched toward Moscow this weekend, drawing a stark warning from President Vladimir Putin that the country was on the brink of a 1917-style "civil war."

The armed insurrection has been defused — for now — but the most serious challenge to Putin's authority in 23 years could still usher in a period of turmoil and change.

Any meaningful loss of Russian energy would force China and India to compete with Western nations for supplies from other producers. If political chaos restricts exports of other commodities, such as grains or fertilizer, that could also send supply and demand out of whack. And that could push up prices for everyone.

Oil and natural gas prices climbed Monday, while wheat prices briefly spiked higher, as investors reacted to the chaotic insurrection. US crude oil futures briefly climbed 1.3%, before trading up 0.6% on Monday evening. Brent crude, the international benchmark, gained 0.6%. Both contracts lost nearly 4% last week.

What layoffs? Americans think their jobs are safe

Stories of mass layoffs around the US may be dominating news cycles, but US workers feel good about the job market. Consumers are not worried about becoming unemployed anytime soon, according to a new Federal Reserve Bank of New York survey.

The Fed's May survey of households, called the Survey of Consumer Expectations, found that workers in the US thought there was less than an 11% chance they'd lose their jobs in the next year. That's down from 12.2% the month prior and the lowest rate since April of 2022.

The number of US consumers who believe unemployment will be higher a year from now also dropped this month.