Australia’s weather made recent economic data seem better than it actually was, according to Goldman Sachs research.
“We believe that the unusual weather pattern of 1Q13 was a significant contributor to the volatility in the data, overstating the true state of recovery in the non-mining sector,” according to Goldman Sachs analysts.
An improvement in non-mining data such as retail spending, building approvals and housing prices have been touted as bell weathers for the end of the RBA’s easing phase, but Goldman Sachs thinks Australia needs more rate cuts in the coming months.
“Although our economic forecasts for 2013 explicitly call for a sharp reacceleration in non-mining economic growth the more positive tone to the data seemed a little too good to be believed,” a Goldman Sachs’ research note, obtained by Business Insider, said.
Goldman Sachs has said the data for January and February was particularly affected by unusual patterns of dry weather through the end of 2012 up until mid March this year.
“Periods of unusually dry weather tend to correlate with positive economic surprises,” the research said.
This chart shows Goldman Sachs’ economic surprise index and the relationship between positive economic surprises and positive rainfall surprises.
“Until mid-March, much of Australia was enduring an exceptionally long run of dry weather – sufficient to take rainfall totals down to their lowest 20% relative to historical mean readings,” Goldman Sachs said.
According to the research, the key take out is that there is a strong correlation between the weather and economic data “because in dry weather phases construction, transport, domestic tourism and retail sales all tend to do better and this supports the demand for casual labour.”
The weather had only a modest effect on retail sales.
Weather surprises were most consistent with employment figures.
This chart shows the unusual rainfall patterns that messed with the data.
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