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Does Extreme Weather Truly Wreak Havoc on the American Economy? Not Really

As we transition to colder temperatures in the United States memories of the dreaded Polar Vortex from just two winters ago continue to reverberate throughout the collective psyche. When the ice thawed, the human and physical damage was real – people perished, infrastructure crumbled and the rebuilding process started almost immediately. The recovering economy was also severely damaged, or so thought a number of pundits. While a lot of money was lost as a result of the “unusual and record-setting event,” there was little to know quantitative analysis about how much extreme weather truly impacts the overall U.S. economy until now, NBC News reports.

Earlier this year, the Federal Reserve Bank of Chicago, in the city that sustained some of the coldest and most extreme weather the Polar Vortex had to offer, published findings that concluded the overall economic damage inflicted by the elongated cold snap was actually minimal and fleeting. “Our results overall support the view that weather has a significant, but short-lived, effect on economic activity.” In a detailed and technical analysis, the Chicago Fed determined other mitigating factors also contributed to the economic slowdown during the harsh winter months of 2013-2014.

extreme weather

It is easy to get swept up in attention-grabbing headlines decrying that billions of dollars are lost as a result of extreme weather every year. Up until the Chicago Fed’s study, statistics were anecdotal and lacked real calculations. “It is fairly unusual that the weather affects the economy in a very significant way, and hence there is little established knowledge, or even a good rule of thumb, that economists can rely upon.” (Federal Reserve Bank of Chicago) Not surprisingly, Fortune summarizes the estimation of weather’s economic impact as “more an art than a science.”

Taking a closer look at the numbers we see the minimal impact of $1 billion losses to the overall U.S. economy. At $17 trillion, a loss of $1 billion represents only .005 percent of the country’s annual output. Per capita, that represents only $3.17. Let’s put it this way, the next time a billion-dollar weather event impacts the country it will cost you $3.17. Furthermore, the U.S. economy typically bounces back nearly entirely from these weather-related losses in the long-term.

To be fair, there is a very real and important portion of the U.S. economy that does feel the financial impact as a result of weather-related events. “One of the biggest hits the economy takes is in the form of lost wages for hourly employees. While salaried office workers get paid even if they can’t make it to work and can likely even work from home, hourly employees aren’t so fortunate. And it’s not as if all these workers can simply make up the money on another day.”

While “lost time is lost money” for a significant number of Americans, the Chicago Fed’s findings seem to debunk what has been a long-assumed theory that extreme weather inflicts material, long-term damage to our country’s economy, when in reality there really is minimal impact.