Natural disasters, economic activity, and property insurance: evidence from weekly U.S. state-level data

We estimate the dynamic causal effects of natural disasters on economic activity using weekly U.S. state-level data over the last forty years. Focusing on large, plausibly unexpected events, we find a temporary decline in state activity that starts in the first week and dissipates within a year. The size and persistence of this decline are scaled with the initial severity and are primarily driven by disruptions to mobility, manufacturing sentiment, exports, household spending, and labor markets. Inflation shows a muted response. We further show that these geographically concentrated shocks rarely register at the national level, underscoring the importance of high-frequency, regional data for capturing the full dynamics of geographically concentrated shocks like natural disasters. Lastly, we show that property insurance materially shapes outcomes: states with higher property insurance coverage experience milder downturns and faster recoveries. Our findings indicate that access to property insurance plays a key role in cushioning local economies against the disruptive effects of natural disasters.