California Drought Just a Blip in State's Economy
NEW YORK (TheStreet) --California may be "on track for having the worst drought in 500 years," but for now at least, the impact on the state's economy will barely register.
Jeffrey Michael, Director of the Business Forecasting Center at the University of the Pacific in Stockton, Calif., expects an impact of no more than one or two tenths of a percent on the overall growth rate.
"It's an urban service economy. The majority of that economy is down in Southern California or in areas that have ample reserves and are not implementing any sorts of restrictions. So it's a big state and the majority of the state -- its economy -- will be unimpacted," he says.
It is indeed a testament to California's size that its overall economy can be barely affected even though it is the nation's top agricultural state, responsible for 11% of all U.S. agriculture according to a Jan. 21 JPMorgan report. The report adds that California was responsible for $50 billion in agricultural sales during 2012.In a worst-case scenario, University of the Pacific's Michael sees perhaps a $1 billion hit to the agriculture industry from the drought. Judging from Wall Street research, the impact of the drought on shares of publicly-traded companies appears to be essentially a non-factor -- at least not the kind of thing that would drive a buy or sell decision. (KRFT), Whole Foods Market (WFM), WhiteWave Foods Co. (WWAV), The Fresh Market Inc. (TFM), and Campbell Soup Co. (CPB), analysts at the bank haven't adjusted earnings estimates for any of these companies yet. "It is too soon to draw conclusions, and many crops can be manually irrigated," the report states, adding nonetheless that "the situation bears watching." Indeed, the lack of any short term share price or macroeconomic impact belies the seriousness of the problem. Follow @dan_freed
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