Global warming could come with dire consequences for the U.S. economy.

June 2018 was the third-warmest on average across the contiguous forty-eight states since record keeping began in 1895, and July was also warmer than the norm. Climatologists expect that temperatures are headed up from here. That will have obvious implications for outdoor industries -- farming, for instance -- but its impact could be even broader.

A Federal Reserve Bank of Richmond analysis of the fallout leads off this week’s economic research roundup. It’s followed by a look at recession spillovers between the U.S. and Europe, an appraisal of the Tax Cut and Jobs Act, and a dig into the demographics of American childbearing. Check this column each Tuesday for the latest economic research from around the world.

Hot in Here

Researchers from the Richmond Fed think the fallout of global warming in the U.S. could be worse than expected, potentially cutting growth by up to a third by the start of the next century.

Every 1 degree increase in summer temperature cuts the gross state product growth rate by 0.154 percentage points, Riccardo Colacito and co-authors find in a study. That reduction could come as people stay indoors rather than engaging in economic activity (think home-buying), and as labor productivity takes a hit.

The finding is something of a surprise: Developing countries are usually thought to be more exposed to climate change because they’re more farming-dependent. America, with its heavily indoor production, is seen as more immune.

Going forward, the authors estimate that rising temperatures would reduce GDP growth by 0.2 to 0.4 percentage points from 2070 to 2099 if emissions are low, shaving the historical average annual growth rate by about 10 percent. Under a high-emissions scenario, the reduction could be up to 1.2 percentage points, or about one-third of the historical average annual GDP growth rate. The authors say the figure should be interpreted with caution, since responses to rising temperatures could change outcomes.

Perks of Divergence

If the U.S. sneezes, will Europe catch cold? Maybe not to the same extent as in previous cycles, based on a JPMorgan analysis. Downturns in the latter are nearly always preceded by American recessions -- the one exception is the U.S. 1990 recession, when there was also a very expansionary German fiscal policy -- but they also generally come alongside European Central Bank monetary policy tightening.

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