In mid-July, a heat dome enveloped Minnesota, prompting Canal Park Brewing Company, located in Duluth, to crank up its air conditioning. However, the cooling system soon failed, forcing the establishment to close for the day and suspend outdoor patio service for three days to safeguard its employees from the extreme heat.
Alex Niemi, a manager at the brewery, which specializes in small-batch beers and casual dining, remarked, “Our location is a popular tourist destination, and we rely heavily on summer sales. The closure had a significant impact on our business. Just those few days of downtime disrupted our entire month.”
With July setting a new record for the hottest month in the contiguous United States, escalating temperatures are increasingly affecting the economy, resulting in financial challenges for small businesses, transportation delays, and power outages.
According to Jeremy Porter, the physical risk research director at the climate risk modeling firm First Street, the primary way heat waves affect the economy is by diminishing business productivity. He explained to CBS News, “Disruptions to normal business operations occur due to infrastructure damage, power outages, or decreased labor efficiency.”
A study by First Street, which examined nearly 30,000 business financial reports, revealed that the third most prevalent climate-related concern among companies was the effects of extreme heat on their workforce, trailing only behind drought-related issues.
As climate change intensifies temperature levels, heat waves are particularly impacting regions in the U.S. that are not well-prepared for extreme heat, Porter noted. In these areas, businesses often lack the necessary infrastructure, air conditioning, or flexible work arrangements to function during heat spells, leading them to reduce operating hours or even close temporarily.
This was evident in Minnesota, where the unusually high temperatures in July presented challenges for Canal Park Brewing. Niemi explained, “We rarely experience days above 90 degrees here. The consecutive days of extreme heat pushed our air conditioning to its limits, ultimately leading to a breakdown.”
Moreover, for small businesses, running air conditioning can significantly increase electricity costs, which are also rising due to the growing demand from numerous data centers that support artificial intelligence.
The National Oceanic and Atmospheric Administration characterizes heat waves as periods of uncharacteristically high temperatures lasting two or more days, surpassing local historical averages.
Experts have warned that as heat waves become more frequent and severe, they may cause more extensive economic damage than other natural disasters. This is largely due to the longer duration of extreme heat events compared to hurricanes, tornadoes, or floods.
Additionally, heat waves typically affect broader geographic areas than other disasters, which tend to be more localized, resulting in more significant disruptions to businesses. Urban centers are particularly susceptible due to their heat-retaining properties and concentration of economic activities.
Recent heat waves across the nation have been estimated to cause a 0.6 percentage point reduction in gross domestic product, according to a report from the insurance company Allianz.
August Gudmundsson, an economist at Gavekal, noted in an email that while wildfires can have a substantial local economic impact, they do not affect GDP to the same extent as heat waves, referencing research from the University of California, Los Angeles, Anderson School of Management.
The rising temperatures are increasing the likelihood of work-related disruptions, with outdoor workers in fields such as construction, manufacturing, and agriculture being particularly vulnerable. Federal data indicates that extreme heat resulted in the deaths of 436 workers between 2011 and 2021, averaging 40 fatalities annually. Research also suggests that heat-related deaths may be underreported, as death certificates often attribute fatalities to underlying health issues rather than external factors like temperature.
