|PAUL WISEMAN, AP Business Writers|
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
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.
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.
Q: How does the economic damage from droughts compare with the damage from other natural disasters?
A: Hurricanes and earthquakes can reduce economic growth by disrupting production and consumer spending. But once the earth has stopped shaking and the winds have died down, communities can rebuild, boosted by insurance payouts and federal aid. Reconstruction can help the overall economy. By contrast, crops killed by drought can't be recovered. "It's a one-shot-a-year production practice for corn and soybeans," said
Q: Have farmers' incomes suffered?
A: Despite the drought, the
Q: What is the effect on American consumers?
A: Prices for corn and soybeans in commodity markets have probably just about peaked, PNC says. But it will take three to six months for higher food prices to work their way through the food chain, says Dutta of
AP Business Writer
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