The Big What If: Extreme Summer Weather Rains on the Economy’s Parade?

The Democratic presidential candidates weren’t the only ones in Miami whose blood was boiling. As the first presidential debates wrapped up, the sun set on one of the city’s hottest Junes ever, with seven record-setting days. The heat in Florida might have been oppressive, but it was not exceptional. A heatwave also is pushing across Europe. Temperatures in southern France recently hit an all-time record 115°F. In Spain, temperatures soared to 104°F, fueling a 16,000-acre wildfire in Catalonia.

These heatwaves come at the same time that massive flooding and tornadoes inundated swaths of the US heartland in the second wettest May on record.

Extreme weather is on the rise. Since 1980, the US has experienced 246 billion-dollar disasters — 44% of which have occurred in the past 10 years alone. Such events also have become more expensive, costing the economy more than $1.1 trillion since 2005 and $500 billion in just the past five years.1

So far, this summer’s extreme weather has had little impact on the markets, except for price fluctuation of some agricultural products, especially corn and soybeans. However, as economic data is released this month and next, we might see a negative impact from our wet, hot American summer.

The Economy Cools When the Mercury Rises

As the heat increases, our narrow comfort zones are exposed. Workers are most productive at “room temperature.” In fact, studies have shown that at temperatures above 77°F workers experience a 2% loss of productivity for each additional 1.8°F increase.2  This likely explains why your office now feels like the Arctic Circle. Meanwhile, analysis of the American Time Use Survey found that on days with a maximum temperature above 85°F, workers with higher climate exposure cut their working day by as much as one hour.3

Heat has also been linked to a significant reduction in income per capita in the US, with average daily income declining 1.5% for each 1.8°F that daily average temperatures exceed 59°F.?  As Geoffrey Heal and Jisung Park point out in their review of research on climate and human health, this means that an 84°F day reduces the country’s annual income by 0.065%, and 20 such days a year would reduce income by 1.2%, equivalent to a minor recession.?

A sizable portion of the US labor force is exposed to extreme weather — with 5 million people working in the transport sector, 7 million in construction and 1.3 million on farms. Overall, 58% of US workers are hourly employees,? and many of the new jobs that have been added to the economy post-recession are part-time positions or in industries like construction that are impacted by extreme weather. Therefore, the sky bears watching this summer, especially with the hottest months of the year ahead of us. From record-setting heat to flooding in the Midwest, weather could play an outsized, unnoticed role in the upcoming economic releases.

Michael is Managing Director and Chief Investment Strategist US SPDR Business. He makes frequent contributions to financial news media, participates in many speaking engagements and is also a member of State Street’s Senior Leadership Team. Read more from Michael on SPDR Blog.

1 NOAA National Centers for Environmental Information (NCEI) U.S. Billion-Dollar Weather and Climate Disasters (2019).

2  Geoffrey Heal, Jisung Park, Reflections—Temperature Stress and the Direct Impact of Climate Change: A Review of an Emerging Literature, Review of Environmental Economics and Policy, Volume 10, Issue 2, Summer 2016, Pages 347–362.

3 Geoffrey Heal, Jisung Park, Reflections—Temperature Stress and the Direct Impact of Climate Change: A Review of an Emerging Literature, Review of Environmental Economics and Policy, Volume 10, Issue 2, Summer 2016, Pages 347–362.

? Geoffrey Heal, Jisung Park, Reflections—Temperature Stress and the Direct Impact of Climate Change: A Review of an Emerging Literature, Review of Environmental Economics and Policy, Volume 10, Issue 2, Summer 2016, Pages 347–362.

? Geoffrey Heal, Jisung Park, Reflections—Temperature Stress and the Direct Impact of Climate Change: A Review of an Emerging Literature, Review of Environmental Economics and Policy, Volume 10, Issue 2, Summer 2016, Pages 347–362.

? Bureau of Labor Statistics, Characteristics of minimum wage workers, 2017,” March 2018.

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7/31/2020