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 Reports from official government agencies, private surveys and U.S.
corporations have blamed colder-than-normal weather and heavy
snowfall across large swaths of the country for everything from
slack retail sales and weak employment data to poor industrial
output.
U.S. retail sales were the latest to disappoint, falling
unexpectedly in January. In a case of economic kismet, the data was
released Thursday right as a fresh snowstorm socked the East Coast,
shutting down the federal government and wreaking havoc from Georgia
to Maine.
But determining the weather's effect on economic activity is
difficult. It's relatively easy to understand how consumers would be
less likely to go to stores in a blizzard, but it is less clear why
the last two monthly jobs reports both came in below expectations.
Some retailers are more tied to weather than others, but when it
comes to corporate earnings there is also a temptation to wonder if
companies are overstating the effects of weather to distract from
other issues.
The uncertainty makes the job harder for the Federal Reserve, which
is trying to reduce its extraordinary bond buying stimulus that has
kept a lid on interest rates for several years. It also complicates
the picture for investors staring at a U.S. stock market that is
just a few percentage points away from all-time highs.
"I can't quantify the degree to which the weather is hampering
efforts in assessing the true condition of our economy. It does make
me suspicious of anything based on surveys," said Dan Fuss, vice
chairman and portfolio manager at Loomis Sayles, which oversees $200
billion in assets.
"You just have to say that you won't get hung up on short-term
reports of economic or market data."
Almost every state east of the Mississippi River, along with Texas
and certain Plains states, has suffered from colder-than-average
weather in the November to January period, according to the National
Climatic Data Center, with the Upper Midwest and Ohio Valley
experiencing their seventh- and 12th-coldest three months since
1895.
In addition, the entire eastern seaboard and several Midwest states
have also seen higher than normal precipitation in that same time
period.
"It looks like bad weather has reduced fourth-quarter real GDP by
about 0.4 percent and a like amount for the first quarter," said
Steven Einhorn, vice chairman at hedge fund Omega Advisors Inc in
New York. He said slower growth in those quarters should result in a
faster pace of growth in the second quarter.
That view dovetails with forecasts in a Reuters survey released
earlier on Thursday showing economists expect U.S. economic growth
to recover from around 2.2 percent in the first quarter to 3 percent
in the second half of the year.
In Thursday's retail sales report, the weather was seen as a major
contributor to the surprising 0.4 percent drop in January.
One of the primary ways winter weather can chill consumption is
through higher heating costs. Morgan Stanley on Thursday estimated
higher heating bills will cut into household spending by about $34.7
billion, more than usual.
Weakness was indeed notable in furniture sales, department stores
and sporting goods stores.
Harder to explain is the 0.6 percent drop in "nonstore retailers,"
which includes online shopping that should not have been affected by
weather patterns, worrying some who think the economy is still
performing below-trend.
The same can be said for January and December employment figures,
which showed less hiring than expected.
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Other recent data is consistent with the idea of a weather-related
drag on the economy. The Institute for Supply Management's January
manufacturing survey showed supplier deliveries, which would be hit
by storms, were slowing. Auto sales were weak in January, and
December housing figures were also below recent trends.
The impact of the cold snap has extended far beyond the retail
industry. In recent weeks, U.S. companies from Ford Motor Co <F.N>
to CSX Corp <CSX.N> to Ingersoll Rand Plc <IR.N> have complained
that their operations have been snarled by the long period of severe
winter weather and the cascading transportation and logistical
problems the snow and subzero temperatures have triggered.
Several Federal Reserve officials, including new chair Janet Yellen,
have commented of late that weather seems to have played a factor in
some of the surprisingly weak data.
"We've had unseasonably cold temperatures that may be affecting
economic activity in the job market and elsewhere," Yellen said on
Tuesday during her testimony before the House Financial Services
Committee.
Other Fed officials evinced more skepticism.
"I've often wondered if we can do a better job of taking out
weather-related aspects of the data so we can look at underlying
trends more clearly," said James Bullard, president of the Federal
Reserve Bank of St. Louis in New York on Wednesday.
"I'm pretty suspicious that it was the weather. But I admit that I
don't have a really good model that will tell me that."
Economists at Deutsche Bank note that certain figures like employee
tax receipts, which are growing at a 4.5 percent year-over-year
rate, about the same as a year ago, suggest the economy has not
downshifted, meaning retail sales and other reports are indeed being
affected by seasonal conditions. That would support Einhorn's view
that the economy should rebound in the second quarter.
As for the near-term view, some economists have been cutting
expected first-quarter growth estimates. BMO Capital Markets in
Toronto lowered their first-quarter growth forecast to 1.7 percent
after the most recent data, compared with earlier estimates for 2
percent growth.
An analysis by Goldman Sachs in early January found that recent
seasons of warmer-than-usual winter should not cause seasonal
distortions to be worse by comparison this winter, because weak
activity gets magnified by a reduced adjustment factor from warm
winters.
Investors meanwhile are left hoping the weakness blows away with the
winter wind.
"Folks like me who have studied this are willing to give the economy
a whole pass on the first quarter," said Phil Orlando, chief equity
strategist at Federated Investors in New York.
"We understand the impact the weather is having and we expect the
economy is going to perk up when we get some more seasonal weather
in the second quarter."
(Reporting By David Gaffen, Daniel
Bases, Herb Lash, Jennifer Ablan and Luciana Lopez in New York and
Lucia Mutikani in Washington; editing by Meredith Mazzilli)
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