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 Economists estimate that freezing temperatures and the ice and snow
storms that have blanketed much of the nation will shave as much as
half a percentage point from gross domestic product in the first
quarter.
That comes on top of the drag from efforts by businesses to sell off
bloated inventories and a one-time hit from the expiration of
benefits for the long-term unemployed.
"The slowdown is testing everyone's optimism about the economy, but
so far it's just a soft patch. The economy will regain strength,"
said Ryan Sweet, a senior economist at Moody's Analytics in West
Chester Pennsylvania. "Outside housing, we don't believe the recent
data signal a change in fundamentals."
Moody's Analytics is keeping its 3.1 percent estimate for 2014
growth and most other economists are sticking with their full-year
forecasts as well, despite data from retail sales to manufacturing
and employment that show the economy braked sharply in January.
While housing also took a hit from bad weather, it was already
cooling because of higher mortgage rates, a lack of properties to
buy, and labor and building material shortages.
And the run of weak data looks set to persist, with severe weather
again dominating in February.
"Weather can ... affect the economic data when it departs
significantly from seasonal norms," said David Mericle, an economist
at Goldman Sachs in New York. "February looks likely to be the
harshest month of all this winter, suggesting the worst might be yet
to come."
Goldman Sachs expects weather to cut a bit more than 0.5 percentage
point off first quarter growth. But Mericle said they look for a
bounce back of 0.5 to 0.75 percentage point in the second quarter.
LOSS OF MOMENTUM
First-quarter GDP growth estimates are currently pegged at or below
a 2 percent annual rate, but weather is only part of the story. In
addition to housing, consumer spending was also already ebbing late
last year.
Not only were retail sales in November and December not as strong as
had been thought, export growth has been less stellar as well. Many
economists now anticipate the fourth-quarter's 3.2 percent growth
pace will be cut to about a 2.5 percent rate when the government
revises the data on Friday.
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Other factors restraining growth, which economists had already
factored into their estimates, include unsustainably high
inventories, the end of jobless benefits for more than 1 million
people in December, and cuts to food stamps.
Businesses that are working through piles of stocks amassed in the
second half of last year are placing fewer orders with
manufacturers, which has fueled weakness in factory production.
"A step-down in the pace of inventory accumulation was an inevitable
headwind to growth in the first quarter," said Michael Feroli, an
economist at JPMorgan in New York.
Inventories are expected to cut off anywhere between 0.5 and 1.0
percentage point from first-quarter GDP.
As for the cuts to jobless benefits and food stamps, they are
forecast to take away between 0.2 and 0.4 percentage points.
Most economists believe that the setback this quarter is temporary
and expect GDP growth this year will be the strongest since the end
of the recession almost five years ago.
But a few, like RBC Capital chief U.S. economist Tom Porcelli, say
the economy never had any significant momentum and severe weather
could be masking some underlying weakness.
"The rates of growth that we witnessed in the tail end of 2013 are
not indicative of the true underlying potential of the economy,
which remains of the 2-2.5 percent variety," said Porcelli. "We are
also witnessing a reversal to the reality of lackluster growth."
(Reporting by Lucia Mutikani; editing by Chizu Nomiyama)
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