NOAA Magazine NOAA Home Page THE ECONOMIC IMPLICATIONS OF AN EL NI O March 6 2002 C NOAA has the primary responsibility within the federal government to routinely provide climate forecasts and products to the nation Most parts of NOAA are in some way involved in El Ni o research monitoring and prediction For example NOAA monitors the developing and in time decreasing pool of warm waters in the tropical Pacific with state of the art satellites launches new research initiatives improves future climate forecasts monitors the impact of the climate event on the fish population in U S coastal waters operates research ships to study the world s vast oceans and provides critical ocean data to users NOAA s El Ni o forecasts have become much more reliable in recent years The new Operational Climate Forecast System which is composed of a state of the art ocean analysis system that uses relevant satellite observations all available oceanic observations and coupled ocean atmosphere prediction models provides NOAA and the nation a longer lead time for developing strategies to deal with expected impactsCincluding economic impacts For example NOAA successfully predicted the major El Ni o of 1997 1998Csix months in advanceCand is now forecasting an El Ni o for 2002 2003 NOAA s definition of El Ni o includes persistent enhanced precipitation along the equator near the international date line and warmer than normal sea surface temperatures exceeding 0 5 C extending from the international date line to the South American coast El Ni o episodes occur roughly every four to five years and can last up to 12 to 18 months It has been nearly four years since the end of the 1997 1998 El Ni o which was followed by three years of La Ni a El Ni o means little boy in Spanish The effect was named by Peruvian fishermen who would notice its impact on their catch around Christmastime and called the phenomenon after the baby Jesus Weather and Climate ImpactsEl Ni o events can have important effects on U S and global weather and climate The first signs of an El Ni o are an unusual warming of the water in the tropical Pacific Ocean something that has begun to occur according to researchers at NOAA s Climate Prediction Center see image below In turn this results in increases in rising warm air changes in the air pressure patterns and shifts in the high level winds that direct the movement of weather Therefore if the 2002 2003 El Ni o develops as expected the first impacts would be confined to the tropical Pacific where Indonesia would begin to experience drier than normal conditions Mature El Ni o conditions develop over a period of several months Typical impacts on the United States Atlantic basin include the following and the Hurricanes Below normal number of tropical storms hurricanes in the Atlantic although this does not imply any limits on the strength or location of any given tropical system Monsoons A drier than normal North American Monsoon especially for Mexico Arizona and New Mexico Drought A drier than normal fall and winter in the U S Pacific Northwest Wintertime Storms A wetter than normal winter in the Gulf Coast states from Louisiana to Florida and in central and southern California if El Ni o is strong Warmer Temperatures A warmer than normal late fall and winter in the northern Great Plains and upper Midwest Implications of El Ni o for the Nation s Economy Weather and climate sensitive industries directlyimpacted by weather such as agriculture construction energy distribution and outdoor recreation account for nearly 10 percent of GDP Further weather and climate indirectly impacts an even larger portion of the nation s economy extending to parts of finance and insurance services retail and wholesale trade as well as manufacturing Some analysts estimate that nearly 25 percent of GDP or 2 7 trillion is either directly or indirectly impacted by weather and climate El Ni o impacts important business variables like sales revenues and employment in a wide range of climate sensitive industries and sectors Overall total U S economic impacts of the 1997 1998 El Ni o were estimated to be on the order of 25 billion These economic impacts lead to both gains and losses among regions and within industries For example department store sales were up by five to 15 percent during the abnormally warm winter in the Midwest but sales of snow equipment like snowmobiles were down by nearly 35 percent Skiing was up in the West but down in the Midwest In the highly weather sensitive energy sector households and businesses saved 2 7 billion in heating costs while energy production and distribution businesses suffered from reduced sales In fact on balance the effect of the 1997 98 El Ni o in the U S could well have been an economic benefit with gains and losses across regions and industries While economic impacts tend to cancel each other out at the national level El Ni o does cause real economic lossessuch as storm damage or crop losses which are not offset by gains elsewhere These are losses that can t be prevented or reduced by a better forecast or mitigation For example on average El Ni os result in agricultural losses approaching 2 billion or nearly 1 2 percent of total crop output In the 1997 98 El Ni o property losses were estimated at nearly 2 6 billion Fortunately these real losses are generally a small fraction of the economic impacts of El Ni o The Economic Benefits of Better El Ni o Forecasts Improving Economic Decisions Although all losses cannot be avoided NOAA s El Ni o forecasts produce economic value by allowing individuals industries and public officials to take timely actions based on the forecast to mitigate and reduce losses or to capitalize on the information to improve economic outcomes For example In California prior to the 1997 1998 El Ni o this state s emergency management agencies and FEMA spent an estimated 165 million preparing for storms and heavy rain Actual storm losses in the 1997 1998 El Ni o were 1 1 billion compared to 2 2 billion in the large 1982 1983 El Ni o Although portions of the 1 1 billion difference are due to different intensities and durations of storminess during each El Ni o a significant portion of the savings came from heightened preparedness Within agriculture crop planting decisions seed selection fertilizer application etc can be adjusted to reduce vulnerability to abnormal weather conditions making both producers and consumers better off It also may be possible to adjust