You may be asking yourself, what does the weather have to do with the economy? Well, you’ve seen the headlines: frigid temperatures in the Midwest leading to the Great Lakes being more than 90% frozen; several disruptive winter storms from Maine to Georgia; and a severe drought in California.
Whether you believe it or not, weather has most likely slowed the economy so far in 2014.
But, Alan…isn’t the weather the ‘scapegoat’ for everything?
In this instance, the Federal Reserve doesn’t think so. They used the word “weather” 119 times in their recent report on the U.S. economy, mentioning that it has led to slower economic growth and even contraction in some areas of the country.
Severe weather – think droughts, snowstorms, and sub-zero temperatures – postpones construction and other outdoor work, closes businesses, slows company hiring efforts, and keeps consumers at home instead of taking trips to the mall or dining out.
Potential proof of weather’s impact can be found in the pace of auto sales since December. Would you go car shopping during a snowstorm?
Despite interest rates at or near historical lows, vehicle sales have slowed after surging to pre-recession levels in 2013. Although the average age of a vehicle on the road today is the oldest it’s ever been, at almost 11.5 years, February auto sales were unchanged from a year ago.
More evidence of slowing growth can be found in other key economic indicators. Jobs growth during December and January averaged only 107,000 – far below the average growth of the previous 12 months. Recent data on retail sales, new home construction, and manufacturing have also lost steam.
So, Alan – what does this mean for the rest of the year?
The economy has slowed over the last few months. For the reasons mentioned above, the record-cold winter has likely been a factor. However, it’s unclear if, and to what extent, other more fundamental shifts are underway.
With the weather likely holding the economy back well into March, it’ll be difficult to assess its true health until after a few months of weather-neutral reports are released – which means May or June at the earliest.
How does this impact you?
If the economy continues to improve as most expect, economic data could surge once the weather warms. Any pent-up demand resulting from consumers staying home this winter could result in a strong snap-back in consumer spending and jobs growth.
Ultimately, I wouldn’t be surprised if you see a few more people at the dealership, shopping malls or attending open houses this spring and summer.