There’s an old joke that says: “God created economists to make weathermen look good.” Generally speaking, economists do not pay much attention to the weather because it does not affect economic activity except over very short periods of time. A bad storm might affect a region for a few days or weeks, but after it’s over, activity quickly recovers and economic activity, while delayed, is not generally reduced. After the storm is over the economy bounces back and people get on with their lives. Since we are in a region that was hit with a severe storm a little over a year ago, I do not want to minimize the impact an event like Superstorm Sandy can have on people’s lives. The loss of property can be devastating and some families have yet to recover from that storm. But the regional economy recovered fairly quickly and resumed its pre-storm growth trajectory.
Today, the weather discussion is slightly different, but I think the result will be the same. The winter of 2013-2014 has been one of the worst in recent memory and bad weather in the form of record cold and severe storms has affected much of the country. The bad weather has definitely had an impact on the economy. Everything from employment to retail sales to construction activity has been curtailed in both December and January. One example: new housing starts in the Midwest region which totaled about 150,000 in 2013, dropped to an annual rate of 50,000 in January. This was the lowest monthly total ever recorded, even lower than January 2009 when the great recession was at its worst. Clearly, the bitter cold of January delayed a lot of activity.
This weather impact is compounding the difficulty of discerning the underlying state of the economy. Just about everyone, including me, expected the U.S. economy to enter a period of stronger growth in 2014 after four and a half years of slow recovery. The political confrontations that had constrained economic growth since mid-2011 were finally being put in the rear view mirror. A budget was passed and the debt ceiling was increased without incident. Then, the economic data coming out of emerging markets like China started to look a little weak and equity markets began to falter. Confidence softened and some uncertainty crept into the economic conversation. Add to this weather-related weakness, and some are starting to question the positive economic outlook.
Our view remains that most of the weakness we have seen in the economic statistics was indeed weather related and there will be a substantial bounce back in employment, consumer spending, home construction and many other activities over the next few months. It will bear close watching, but it’s far too early to change our outlook based on something as temporary as the weather.