Wildfires will be a big issue for LA, but a modest drag on the US

The impact from the wildfires in the Los Angeles area on the US labor market and GDP will be small, potentially shaving 0.2ppts to 0.3ppts off Q1 GDP. However, GDP isn’t well-equipped to measure the ultimate economic costs of natural disasters, including wildfires.

What you will learn:

• Risks are weighted toward a larger drag as Los Angeles is the second-largest metro area in terms of nominal consumer spending and high-frequency data is dropping quickly.
• The wildfires could be the costliest natural disaster in US history, surpassing Hurricane Katrina. Odds are the wildfires will be less economically noticeable on the US economy since Katrina disrupted domestic energy infrastructure and pushed retail gasoline prices higher nationally.
• The wildfires will likely reduce US nonfarm payrolls between 20,000 and 25,000 in January. We base this on the number of people under evacuation orders and the 1993 Los Angeles wildfires.
• There is considerable uncertainty in the economic cost and subsequent recovery following the wildfires. As with most natural disasters, the impact on the US is small, but the regional implications are significant. We will revisit our forecast for Los Angeles when we update our regional forecasts.