Goldman’s Zach Pandl takes on the #1 issue of the day: the downright tropical weather being experienced across much of America this ‘winter’.
A widely used metric of national weather conditions is the index of Heating Degree Days (HDD) produced by the National Oceanic and Atmospheric Administration (NOAA). The HDD index is a population-weighted measure of how far temperatures are below a benchmark level. For each day, the NOAA measures the number of degrees by which average temperatures fall below 65 degrees, and then totals them for each week or month. Therefore, colder temperatures imply higher values for the HDD index.
By this measure the winter of 2011-12 has been exceptionally mild (we discussed this issue earlier in Andrew Tilton, “‘Tis the Season for Seasonal Adjustment.” US Economics Analyst, January 13, 2012). Exhibit 1 shows the difference between the HDD index for each month and the average for that month over the previous five years. This measure has been below zero—meaning temperatures have been above the trailing five-year average—in every month since October, and temperatures have become increasingly warm (relative to the seasonal norm) in each subsequent month. January was especially warm across the country, with an HDD index reading more than two standard deviations from the norm.
Photo: Goldman Sachs
Evidently the relationship between warm weather and growth isn’t that obvious, as some forms of economic activity do tail off in warm weather (certain types of retail, home heating purchases, etc.) but that generally the research shows that warm weather is a net plus, especially in areas like construction.
Pandl goes on to argue that the warm weather added 40 basis points to Goldman’s own proprietary Current Activity Index, and that if March returns to normal, it could subtract a 10-40 basis points from the index.