When examining the businesses located in the burn zones of the January wildfires as well as those in the areas which faced mandatory evacuations, the total economic impact from the disruption could be as high as $10 billion.

That estimate comes from a report compiled by the Los Angeles County Economic Development Corp. The businesses in the burn zones will endure the consequences of the fires for longer, though the immediate damage caused by interruptions to businesses in what LAEDC calls “secondary fire areas” are also significant.

In Pacific Palisades, the burn zone covered 22 square miles, while the secondary fire area covered 43 square miles, according to Matthew Skyberg, an analyst at LAEDC. For Eaton, this is 38 square miles and 88 square miles, respectively.

With greater land mass comes a larger economic footprint. Businesses within the secondary fire areas for both Palisades and Eaton generate an estimated $6.8 billion in annual sales revenue, compared to $1.4 billion in the burn areas. They also employ nearly four times as many people. When comparing the revenue distributions in Eaton versus Palisades, the results change significantly between the burn zones and the secondary fire areas. About 71% of the revenue generated in both burn zones comes from Palisades’ businesses, while 74% of the revenue in the secondary zones comes from the Eaton area, said Justin Adams, a senior economist at LAEDC.

“While the Palisades experienced more concentrated direct damage, the Eaton fire potentially created wider reaching business disruptions across the region,” Adams said during an LAEDC webinar on Sept. 15.

That said, Adams noted that businesses in the secondary areas don’t have to deal with all that comes with fire damage. However, given the massive amount of revenue these businesses generate annually, it still presents short-term economic disruptions.

Calculating losses

LAEDC examined three scenarios when calculating the economic impacts for businesses in the burn zones, said Dan Wei, an economist at LAEDC, due to uncertainties around insurance complications, labor shortages, materials costs and financing.

The first scenario followed the estimated median repair and reconstruction timelines provided by FEMA. Scenario two doubled that timeline, and scenario three tripled it.

For these three scenarios, the initial economic losses are consistent and estimated to be $1.3 billion in lost revenue and 8,200 lost jobs. Over the longer term, the losses are estimated to be between $4.6 billion and $8.9 billion over the next five years, based on the three scenarios.

“Direct losses make up roughly 50% to 60% of the total, reflecting the immediate damages and disruptions,” Wei said. “…The remaining 40% to 45% arises from the ripple effects across the entire county.”

The best-case scenario reports a full recovery by 2028, while the third scenario pushes a full recovery until 2034. For the secondary fire areas, LAEDC calculated a loss ranging between $625 million and $1.2 billion in economic output.

Across both the high and low ends of the losses in economic output for burn areas and secondary fire areas, LAEDC estimated the grand total to be between $5.2 billion and $10.1 billion, as well as a loss of federal, state and local taxes from $850 million to $1.6 billion. That also means labor income losses ranging from $2.2 billion to $4.2 billion and an employment decline of between 28,240 and 55,250 job-years. A job-year is defined as one job held for one full year.

‘Distinct needs’

Demographics for both workers in the fire areas and the types of businesses most impacted should also be examined when thinking about recovery timelines and strategies, Skyberg said.

“Palisades represents a more established homeowner orientated community with strong education and professional ties, while Eaton reflects a dynamic, diverse and mixed-income community that depends more heavily on commuting and service-orientated jobs,” Skyberg said.

Aside from the “other” category, the most prominent industries in Eaton’s burn zone and secondary fire areas were “other services except public administration.” Adams said this includes personal and pet care services, automotive serves, dry cleaning and philanthropic services. The second most impacted industry was professional, science and tech services. The third varied in Eaton with health care and social assistance as the third most prevalent in the secondary fire areas compared to retail trade in the burn zone.

In Palisades – excluding “other” – professional, science and tech services was the top category for impacted industries, followed by “other services except public administration” and then retail trade.

“Many of these impacted businesses are in consumer facing industries … (which) has implications for the speed at which they can rebound,” Adams said.

Aside from business impacts, LAEDC also reported that 94% of filed insurance claims had been paid as of May, for a grand total of $17.1 billion – about two-thirds of which was for properties in Palisades. As for home sales, LAEDC reported less housing sales in the burn areas this year than there have been annually over the last 10 years, suggesting there is not “a long-term flight of existing residents from the burn areas.”