Widespread winter drought across the United States has evolved from a climate concern into a significant input-cost risk for businesses, households, and local economies.

As of January 13, 2026, 42.55% of the Lower 48 states are classified as being in drought, according to the U.S. Drought Monitor. When areas labeled “abnormally dry” are included, more than two-thirds of the country is experiencing some form of unusual winter dryness.

Winter is typically the period when snowpack and soil moisture replenish water storage systems that support spring and summer demand. When this replenishment does not occur, utilities encounter higher operating costs, water supplies become constrained, and water-intensive industries experience increased cost pressures that propagate through supply chains.

IMPLAN was used to model how sustained winter dryness could translate into economy-wide cost impacts through the water system.

Modeling the Economic Exposure to Higher Water Costs

Analysis using IMPLAN indicates that drought-driven increases in the cost of water services may result in significant annual economic pressure.

In the modeled scenario, the water industry, defined as water, sewage, and related systems, is estimated to experience a $36 billion annual cost increase associated with the assumed price shock. These higher costs are not confined to utilities. Businesses incur approximately $12 billion in direct additional costs through increased water-related bills and service expenses, while an additional $10 billion is transmitted through supply chains as higher embedded input costs in goods and services.

Industries with the greatest exposure to increased spending include other real estate, higher education institutions, grain farming, oil and gas extraction, and petroleum refineries. Although many sectors are affected, manufacturing exhibits the largest aggregate increase, approximately $6 billion, primarily through upstream and downstream supply-chain channels.

These results reflect modeled price transmission throughout the economy and do not assume any specific federal or state policy response.

Why Drought Raises Water-System Costs

Drought increases water-system costs through several well-documented operational channels. Constrained supply, reduced source-water quality requiring additional treatment, competition for alternative supplies, and revenue strain during conservation periods all contribute to rising costs, even as utilities face fixed or increasing operating expenses.

During drought conditions, the market price of water can increase significantly in areas where utilities must secure limited supplies. Research and case evidence demonstrate that drought can materially increase the price of surface water compared to wet years, illustrating how scarcity can rapidly become a budgetary and pricing issue. In certain regions, drought-rate structures explicitly add surcharges that raise per-unit rates when conservation targets are met.

Even where rate schedules differ across utilities, drought reliably increases the underlying cost structure that utilities must recover over time. This creates a credible pathway for higher water-related costs to reach households and businesses.

The Modeled Scenario: Water Cost Inflation

To quantify this exposure, the analysis applies a 30% price increase to the industry category corresponding to water, sewage, and other systems. The model then estimates how this price change transmits through buyer industries and final demand using a Forward Linkages Price Change (Cost-Push) framework.

This approach is intended to capture how higher input costs cascade across industries. Conceptually, the scenario represents an economy-wide water cost inflation event, measuring which sectors ultimately incur higher costs and where these impacts are most significant when water-system costs rise.

Implications for Households

Households are likely to experience similar upward pressure on water-related bills when utilities adjust rates or implement drought surcharges to recover costs. Although some households may reduce usage, higher unit costs combined with fixed water needs often result in a non-discretionary increase in expenses.

For budget-constrained households, these increases may reduce spending on more elastic categories such as recreation and entertainment.

Economist Perspective

As IMPLAN economist Candi Clouse, Ph.D., explains:

“Winter drought is not just a weather story—it’s an input-cost story. When water-system operating costs rise, those costs don’t stay in the utility sector; they move through supply chains into the prices businesses pay to operate.”

She adds:

“The modeled increases are best read as cost pressure, not destiny. The realized impacts will depend on local hydrology, utility rate design, conservation response, and how quickly precipitation patterns normalize.”

Turn Water Cost Risk Into Economic Insight

As climate variability increasingly affects critical inputs such as water, businesses, utilities, and policymakers require more than anecdotal evidence; they need quantifiable economic insight.

IMPLAN enables organizations to measure how cost pressures in one sector, such as water utilities, propagate through supply chains, affect household spending, and reshape regional and national economies. IMPLAN allows users to model hypothetical scenarios, test assumptions, and communicate defensible results using transparent methodology and reliable data.

Whether assessing drought risk, evaluating infrastructure investments, or preparing for policy and pricing changes, IMPLAN provides the tools necessary to understand how environmental conditions translate into tangible economic impacts.

Want to analyze ripple effects in your industry? Schedule a demo today. 

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