Bloomberg News

U.S. Drought May Cut GDP by 1 Percentage Point, Deutsche Says

November 11, 2012

The U.S. drought will reduce economic growth by as much as one percentage point this year after inventories of farm goods dropped, said Joseph LaVorgna, the chief U.S. economist at Deutsche Bank Securities Inc.

The worst drought in more than 50 years scorched U.S. corn, soybean and wheat crops in July and August, cutting production. As stockpiles were drawn down to meet demand for grains and oilseeds, the value of farm inventories fell $20 billion last quarter following an $8 billion drop the prior three months, LaVorgna said in a note.

“If the U.S. were growing at 4 percent, it wouldn’t be as big an issue, but at 2 percent ,it’s noticed,” LaVorgna said in a telephone interview from New York. Gross domestic product this year will be reduced by 0.5 percentage point to 1 percentage point because of inventory losses, he said.

The U.S. will grow by 2.1 percent in 2012, according to the median of 89 estimates in Bloomberg survey of economists. The drop in farm inventories subtracted 0.4 percentage point from third-quarter GDP, the value of all goods and services produced, after cutting 0.2 point in the prior three months, Commerce Department data show.

Deutsche Bank’s 2012 forecast for U.S. GDP was 2.1 percent as of Oct. 31, according to data compiled by Bloomberg. Farmers may start to replenish inventories as crops rebound, LaVorgna said.

“We may get a bit of a bounce this quarter or in the first half of next year, assuming normal weather,” LaVorgna said.

To contact the reporter on this story: Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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