Winter Weather Woes: Debilitating?
By Peter G Hall
Vice-President and Chief Economist Export Development Canada
Like it or not, the weather and well-being are often at odds. This winter, the complaint-meter has been testing new limits, as low temperatures and heavy snowfalls in the US and Canada have disrupted general activity, and suppressed economic indicators. This isn’t the first time weather has weighed on the economy. Neither will it be the last. Is it a new reality, or can we look forward to better times?
Recent years tell a grim tale. In 2011, there was a major natural event almost every month through to the autumn. It began with January flooding in Australia, then the February earthquake in New Zealand, the devastating March earthquake and tsunami in Japan, and so on. It was a tough blow for a world economy that was already dealing with post-stimulus doldrums. But it’s not alone: in its annual assessment of the global climate, the UN registered concern about planet-wide weather extremes in 2013. It cited record-setting temperatures in both northern and southern hemispheres, powerful storms in various locations, the oft-cited polar vortex and other unusual developments.
Enter 2014, and it seems we are still talking weather. The polar vortex dumped three-to-four times the amount of snow usually seen in the US northeast region, according to the NESIS index. This was abetted by two category 3 snowstorms in the January-February period that ranked among the top 30 storms of the last half-century. Heating degree-days – a measure of temperature effects – were considerably higher than benchmark levels in January and February, mostly in the Midwest. Data suggest that our complaints are borne out by the facts. So, has it really affected the economy?
The Federal Reserve Board seems to think so. In its latest summary of current economic conditions by geographic region – better known as the ‘Beige Book’ – the word ‘weather’ is used 25 times in the 7-page executive summary, appearing in almost every paragraph of the report. This is in addition to other descriptive references to the weather. It’s safe to conclude from this and other Fed testimony that current weakness in the data is in great part due to weather disruption.
If true, it’s a great relief. Most of the US key indicators went into a tailspin in January and February, and there is a nail-biting hope that March sees some improvement. Average hours worked have slumped, same goes for new orders of capital goods, and homebuilding permits took a beating. Buyers in both the manufacturing and non-manufacturing sectors were gloomy, following a particularly upbeat autumn last year. Thankfully, consumer sentiment remains resilient.
That’s perhaps an indication that Americans are writing off the effects as temporary. Other data back this up. The spike in first-quarter energy and utilities output – running starkly counter to the rest of industrial production – speaks of the weather-related draw on power usage and heating. It surged to a level about 7 per cent above the norm, and it is safe to say that there was nothing even remotely close to it over the past 30 years – perhaps more.
There’s good news behind such an anomaly. Data speak loudly of pent-up demand in key US sectors. New home construction – on hold at the moment – is still well shy of basic household formation, and inventories of existing homes are about as tight as they ever get. Recent permits data strongly suggest imminent fast growth. The auto sector is also behind, despite decent sales figures, given the average age of cars on the road today. Other sectors are facing the same pressures. It looks like North American weather has deferred activity, not deleted it.
The bottom line? We leave weather forecasting to others, but as far as the economy is concerned, a return to anything remotely close to normal conditions suggests that US economic activity is in for an imminent rebound. Watch the March and April indicators closely!