The devastating wildfires that have erupted in California are resembling an uncontrollable beast, wreaking havoc and showing no signs of being extinguished any time soon
This aggressive blaze is rapidly placing itself in the running to become one of the most destructive fires in U.Shistory, sparking widespread concern due to its extensive reach and deep impactsMorgan Stanley has conducted a thorough analysis of similar disasters from the past to project the economic repercussions of this wildfire crisis.
According to Morgan Stanley, the aftermath of the fires is expected to send ripples across multiple sectors of the economyIn terms of inflation, the core Consumer Price Index (CPI) is predicted to rise between 4 to 9 basis points, heavily driven by car pricesDue to the destruction caused by the fires, a significant number of vehicles may have been destroyed or may not be circulating normally due to immobilized transportation networks, resulting in a supply-demand imbalance and accordingly increasing prices
Furthermore, in areas experiencing severe damage, this inflationary pressure could persist for at least three months, leading to sustained cost-of-living pressures for local residents.
In the job market, Morgan Stanley forecasts a substantial hit in California's employment numbers for January, estimating a reduction of between 20,000 to 40,000 jobsHistorical data on past wildfires indicates a wide fluctuation in employment figures in California, ranging from a drop of 39,000 jobs below trend to a rise of 23,000 jobs above trend, with the historical average being a decline of around 30,000 jobsAlthough unemployment claims offer some insights into labor market shifts, they furnish limited reference value concerning the scale of the current employment gap
The indiscriminate fire has caused many businesses to halted operations, leading to job losses and further challenges in California's already strained employment scenario.
As for retail sales, the analysis from Morgan Stanley suggests that overall and core retail figures are likely to show an initial decline compared to trendsThe impact of the fire months on retail sales is likely to be negative, but the muddled nature of historical data makes drawing precise conclusions challengingReviewing historical median data, both overall and core retail figures typically fall below normal trends in the month of the fire and the month following it, although this effect remains within one standard deviationNotably, contrary to common belief, historical evidence shows that sales of construction materials and automobiles do not tend to see marked increases following such disasters
This could be attributed to the extensive damage caused by fires, severely limiting consumer purchasing power, along with significant disruptions across supply chains, which fail to meet potential spikes in demand.
Recently, economists at Goldman Sachs have also engaged in analyzing the wildfire's effects and released a relevant reportLed by Jan Hatzius, the economists predict a loss of approximately 15,000 to 25,000 non-farm jobs in the January employment reportThis forecast is grounded in the fact that currently only about 0.5% of California's population is under evacuation orders or warningsWhile this proportion may seem trivial, it has had a significant impact on the job marketFirst, those under evacuation orders or warnings are predominantly situated in specific sectors and regions where business operations have been directly affected, resulting in jobs becoming temporarily unavailable and diminishing employment opportunities
Secondly, the resulting panic and uncertainty from the wildfires lead businesses to adopt stricter hiring practices, postponing or halting recruitment plans altogetherAdditionally, the wildfires threaten to disrupt supply chains, affecting firms’ raw material supplies and product distributions, further impacting the employment landscape as many supply-dependent enterprises may be compelled to downsize or defer hiring.
Since the wildfire ignited in Los Angeles on January 7, the flames have consistently spread, with losses continuing to escalateThe situation remains tumultuous, and the timeline for fully controlling the blaze is still uncertainNotably, the Palisades fire has inflicted substantial damage and is likely to rank as the second highest in terms of building destruction in recorded history
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