How the LA wildfires will impact US growth and the labor market, Goldman Sachs says
AP Photo/Etienne Laurent
- Los Angeles wildfires have burned 40,000 acres, killing 24 and destroying 12,000 structures.
- Goldman Sachs estimates the fires as one of the 20 costliest US natural disasters.
- The firm took stock of the impact the fires will have on US GDP and the labor market.
The devastating wildfires across Los Angeles are sparking concerns about the potential impact on the broader economy.
Early estimates of the total damage rank the wildfire as one of the 20 costliest natural disasters as a share of GDP in US history, according to Goldman Sachs.
Insured losses are expected to reach as high as $30 billion, and AccuWeather estimates the total economic losses from the fire could be as high as $275 billion.
Goldman Sachs took stock of the impact the fires are expected to have on broad readings of the US economy.
The bank estimates that first-quarter GDP growth will decline by 0.2 percentage points, which excludes offsetting effects from a rapid rebuild of communities, which has typically followed past wildfires.
For the January employment report, Goldman Sachs estimates "a modest drag" of 15,000 to 25,000 jobs due to the wildfires because "only about 0.5% of California's population is currently under evacuation order or warning."
For weekly unemployment insurance claims, the bank said it doesn't see a huge uptick driven by the wildfires.
"Timely alternative data have not shown a noticeable pickup in online searches for unemployment benefits since the start of the first," economists at Goldman Sachs said. "As a result, we expect another low initial claims reading on Thursday."
A potential rise in inflation has been a main market concern in recent months, and insurance represents a component of inflation reports.
But Goldman Sachs doesn't expect higher insurance costs driven by the wildfires to impact inflation meaningfully.
"Our insurance equity analysts expect limited spillover to prices outside of California and because the weight of homeowners' insurance in the PCE price index is just 0.1%," Goldman Sachs explained.
Additionally, Jeffrey Mezger, the CEO of homebuilder KB Home, said the resulting rebuild efforts in Los Angeles should not lead to an uptick in inflation related to labor and materials.
"The population is big and the capacity is there to handle a lot. So I don't expect a lot of labor or material pinch," Mezger said in his company's earnings call on Monday.
Goldman Sachs cautioned that with the Eaton and Palisades fires at about 33% and 14% containment as of Monday evening, there remains considerable uncertainty about the ultimate property damages, including insured and uninsured losses.