Temperature Fluctuations and Economic Conditions: Evidence from Weekly U.S. Data

We study how temperature fluctuations affect U.S. state-level economic conditions using high frequency, weekly data from 1987 to 2024. The impulse response to a temperature shock from a panel local projection framework reveals a modest short-run increase in economic conditions followed by a delayed and persistent medium-run decline. Nonlinearities show that the medium-run decline is larger and more persistent at higher base temperatures. A decomposition of the economic conditions index points to the labor market as the primary channel. To interpret these findings, we develop a weekly labor search and matching model featuring a labor disutility channel, a heat damage stock, and a slow-moving adaptation mechanism.