The final estimates for first-quarter U.S. GDP were, to put it mildly, terrible. A brutal winter walloped much of the East and Midwest, leaving millions to trudge through deep snowdrifts to get to work -- if they could even make it at all. With so many Americans evidently unable or unwilling to work and spend, the nation's quarterly GDP declined by 2.9% -- by far the worst quarterly decline in recorded history that was not recorded in the middle of a recession. For months, the refrain from government and business leaders sounded the same: It was winter's fault!
The difference between a flat quarter and the final 2.9% decline, in real terms, amounts to roughly $30 billion, which is what you'd get by simply subtracting the government's final first-quarter GDP tally from its first estimate (since GDP figures are annualized, we also have to divide that result by four to get a more accurate result).
This is rather like using a jackhammer to chisel a statue, and there are more precise ways to assess winter's impact. PNC economist Gus Faucher has estimated that roughly half of the drop in GDP -- a bit more than $15 billion -- can be attributed to weather. That seems like a reasonable estimate, as the drop in consumer spending from first to final estimates works out to an economic loss of roughly $13.5 billion, and weak consumer spending is one of the clearest indications of weather-related economic damage. Consumer-focused companies certainly had no shortage of fingers to point at winter weather when their first-quarter results came in lighter than expected.
Where does this rank in terms of America's costliest winters? The total weather-related damage has been estimated at roughly $5 billion, but this only accounts for what individuals and businesses lost (and typically reported to their insurance companies) to the storms and the cold, but not the overall economic impact. If we use this one-to-three damage-to-economic-loss ratio as a rough guideline to the net economic impact of other wretched winters, we find that 2014 outpaces some memorably miserable years, but it falls far behind several others:
Most readers should recall the winter of 1993. This columnist certainly does. One of my most interesting childhood memories involves finding myself trapped at the bottom of a steep hill after one storm that year coated everything in my neighborhood with an inch of ice. Our economic data also remembers. After the U.S. exited the recession that started off that decade, every single quarter of the 1990s saw real GDP growth of at least 1% -- except for the first quarter of 1993, when the Storm of the Century hit and knocked GDP growth down to 0.7%.
However, unlike what happened this year, consumers still managed to dig themselves out of the snow and get to shopping, since real personal consumption expenditures grew by a moderately healthy 1.5% from the fourth quarter of 1992. Also unlike this year, the Dow Jones Industrial Average (DJINDICES:^DJI) advanced 4% during the first quarter of 1993, and although it dropped sharply around the time first-quarter GDP figures came out, it still advanced nearly 7% during the first half of the year.
No other winter can quite hold a candle to 1993 in rough economic costs, except for the one you're probably quite curious about -- the Great Blizzard of 1888. This storm dumped up to 5 feet of snow across the Northeast, and fierce wind piled snowdrifts up to 40 feet high in places, causing one of only two multi-day weather-related closures in the history of the New York Stock Exchange. Although damage estimates are incomplete at best, the cost of fire damage alone (firemen couldn't get their equipment out of the snowdrifts) was thought to be $25 million.
This conservative estimate was worth approximately 0.2% of contemporary GDP, which is a more appropriate adjustment in this case than inflation, as it better represents the true economic cost of such long-ago events than inflation. That would equate to $30 billion in damages today, and multiplying by three gives us a staggering $90 billion in lost economic potential, which in real terms makes it a worse weather event than Hurricane Katrina.
Speaking of Katrina, we should also look at the economic costs of other major natural disasters. We won't increase the damage three times for these other events, since most non-winter disasters generally don't have the same sort of widespread long-lasting economic impact as winter storms -- although some disasters certainly can result in long-lasting economic damage to parts of the country:
The costliest disasters, with the exception of 1888's monster storm, tend not to come with blizzards and bitter cold. The five most destructive natural disasters in American history include one hurricane, two earthquakes -- and, topping the list with destruction that may never be duplicated, the 1871 fire that nearly destroyed the city of Chicago. With losses estimated at 2.5% of contemporary GDP, that fire caused the equivalent of $400 billion in damage, burning through more than 18,000 buildings in a single night. By comparison, the climax of The Avengers, where movie magic sent alien invaders to destroy much of midtown Manhattan, was estimated to have caused only $160 billion in damage.
Want to learn more about some of the most destructive disasters in American history? Click on the following links to read detailed reports of these events:
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