Impact of the California Wildfires on the US Economy

The 2025 California Wildfires Are Likely to Be Less Economically Damaging Than the Largest Natural Disasters in US History But May Still Rank Among the Top 20 Worst

Scaling by the amount of damages as well as the population affected by the disaster, our analysts estimate the Eaton and Palisades fires in California may lead to an approximate 0.2 percentage point drag on first quarter GDP growth. The impact will be relatively modest because the estimated damage is much smaller than that associated with the major hurricanes.

While natural disasters do cause short-term disruptions to the economy, Goldman Sachs Research notes that over a longer time horizon, the cumulative impact of the wildfires on growth is likely to be more neutral because the short-term hit to GDP growth will be at least partially offset by an eventual boost from rebuilding. For instance, following past large wildfires, rebuilding activity increased considerably just several months after the wildfire, in contrast to large hurricanes where rebuilding tends to follow only after a longer lag.

Potential impact on the labor market

The wildfires are expected to have an impact on the labor market. Employment in the Los Angeles metropolitan statistical area (which includes Long Beach and Anaheim) declined after the fires started on January 7, according to Goldman Sachs Research.

Initial claims for unemployment insurance in California increased by a total of 13,000 in the three weeks following the start of the fires, likely reflecting the impact of the wildfires, but declined in the week that ended on February 1 and are now roughly 7,000 above the pre-fire level.

How the wildfires could impact homeowners insurance

In California, homeowners are shifting from standard property insurance toward the excess and surplus lines market – known as the California FAIR plan. The FAIR plan provides last-resort coverage but typically at a higher rate for risks whose cost is greater than what a standard insurance company could handle. While this will put upward pressure on the price of homeowners insurance in the state, homeowners will still have access to coverage.

The Combined Property Losses From the Eaton and Palisades Fires Are on Track to Top the Single Most Destructive Wildfire (the Camp Fire in 2018) in California History

As California homeowners face higher property insurance prices, our analysts also expect upward pressure on nationwide property catastrophe reinsurance prices following the wildfires. That said, they don’t expect the primary property insurance rates to be materially affected in the rest of the country. National property insurance inflation is expected to moderate on net this year. If homeowners insurance rates were to increase nationally, it would be unlikely to have a material impact on either the CPI (in which homeowners insurance is not directly measured), or on PCE prices (in which homeowners insurance has a small weight).