How US drought damaged economy as well as crops

Associated Press Modified: October 26, 2012 at 5:30 pm •  Published: October 26, 2012
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WASHINGTON (AP) — The worst drought in decades didn't just shrivel corn and soybeans. It shrank economic growth too.

The government said Friday that the U.S. economy grew at a modest 2 percent annual rate from July through September. And the crop-killing drought reduced growth by 0.4 percentage points.

That means normal weather would have lifted economic growth to 2.4 percent for the quarter, the Commerce Department said.

Below are questions and answers about the drought and its effect on gross domestic product. GDP is the broadest measure of the economy.

Q: How severe was the drought?

A: The dry spell that hit the Midwest and Great Plains last summer was the worst since the 1950s. It covered 80 percent of U.S. farmland. The drought hit hardest in July, a critical time for corn and other crops. Corn production is expected to drop more than 13 percent in the 2012-2013 growing season. Soybean production will likely fall 8 percent. Cattle, sheep and pig farmers are getting hit, too: The cost of feed is rising, and pastures have withered in the heat.

Q: How did the drought reduce economic growth?

A: Mainly by reducing crop supplies. Smaller supplies cut growth by 0.17 percent point from April to June and by 0.42 percentage point from July through September. Jeet Dutta, a senior economist at Moody's Analytics, says he thinks the worst is over. He expects the drought's impact on growth to diminish to 0.1 percentage point in the final three months of 2012.

Q: Does the economic damage go beyond the farm?

A: Yes, because GDP figures don't capture, for example, higher food prices that can follow a drought. And farmers hit by a drought typically cut back on purchases of farm equipment, vehicles and other goods. That can hurt merchants in farm country and damage that part of the economy. Ernie Goss, an economics professor at Creighton University in Omaha, says Midwest merchants are expecting a weak holiday season in part because farmers have curtailed their spending. And the drought led to lower water levels in the Mississippi River that stranded barges, causing costly shipping delays.



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