Winter storms and a two-month deep freeze have gotten the blame for weak sales of jeans at the Gap (GPS), burgers at McDonald's (MCD), sedans at General Motors (GM) and shampoo at Walgreen’s (WAG). But companies and economists may be a bit too eager to blame every recent downdraft in the economy on bad weather.
Nobody disputes it’s been a brutal winter in some parts of the country, with a record number of canceled airline flights, a polar vortex that sent heating bills soaring and paralyzing snowstorms as far south as Alabama. Along with the lousy weather has come a string of disappointing economic reports. Job creation during the past three months has averaged a mere 129,000 per month, compared with 204,000 per month for the 11 months prior to that. At least 194 big companies cited weather in their latest earnings reports, according to FactSet. When the Federal Reserve released its latest overview of the economy, it mentioned weather 119 times — a record, as far as anyone can tell.
But some economists find the weather-based explanations for underperformance unconvincing. “There’s no way this is all weather,” says Jeffrey Rosen, chief economist at research firm Briefing.com. “We’ve had other bouts of bad weather over the last 15 years, so you can’t say this is a generational event. And we’ve seen weakness in areas you wouldn’t expect weather to weaken.”
That kind of skepticism is fueled by several details in recent economic reports that contradict the ruinous-winter narrative. Examples:
Construction jobs. The construction industry added 65,000 jobs in January and February, when the economy was supposedly in a deep freeze. If any industry is sensitive to lousy weather, it ought to be this one. Yet builders were apparently breaking ground — er, ice — despite the strong incentive to stay inside.
Home sales. Nationwide, sales of existing homes fell 5.1% in January, but the biggest drop was in the West, where cold weather hasn’t been an unusual problem this year. The smallest drop, meanwhile, was in the snowbound Northeast. Housing starts tell a similar story: Starts of single-family homes in January fell 15.9% overall — but rose in the Northeast.
Auto sales. In January and February, they averaged a modest 15.3 million vehicles per month, at an annualized rate, which many analysts characterized as a storm-related slowdown. Yet that’s about the same rate of sales that’s been in place since last fall, except for November, when sales spiked in response to large discounts by automakers. And the 2014 pace so far just about matches the total sales figure for 2013. So auto sales might be lower than optimistic forecasts have called for, but are still close to what can be considered a “normal” rate.
Many economists expect 2014 to be a breakout year for the economy. Budget battles in Washington seem to have been settled, Europe is bouncing back from a double-dip recession, and many consumers and businesses have shed debt and fortified their finances. So there may be a tendency to explain away an unexpected slowdown rather than changing the broader outlook.
What explains the slowdown?
Meanwhile, if weather doesn’t explain a slowing economy, what does? It might be nothing more than a pattern of fluctuating growth, plus a few other factors that are hardly secret. In 2009, 2010 and 2011, there was relatively strong growth toward the end of the year, which generated predictions of an accelerating economy during the next 12 months. Yet each time, growth sagged for a quarter or two before recovering. We many simply be stuck in the same jagged pattern of growth. It’s also possible that spending was abnormally high in 2013. Consumers may have hurried to purchase homes, cars and other things financed by borrowing as record-low interest rates began to rise, which could leave a divot in such spending in 2014.
The Federal Reserve has also begun to tighten its monetary policy, by curtailing the "quantitative easing" that’s been in effect more or less since 2009. Those prior growth slowdowns occurred while the Fed was still easing to support a weak economy. For now, the Fed seems to think the economy can survive with tighter policy. But it could turn out that other factors, such as rising interest rates, stagnant incomes, or a labor-force “skills gap,” might be even more powerful than winter storms. As Fed chair Janet Yellen has said, the Fed can change its policies if new data give it a reason to.
We should find out soon if an economic thaw is coming, or the economic chill is likely to persist despite warmer springtime weather. If the winter blahs were the problem all along, then spending, sales and hiring should pick up sharply in coming months. If they don’t, however, it will be time to look for another diagnosis. By summer, maybe we’ll have a brutal heat wave or a parade of thunderstorms to blame for a weak economy.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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