The U.S. has had a particularly harsh winter. January was the coldest in the U.S. since 1988, according to Bank of America’s David Woo.
The extreme weather has wreaked havoc across economic data, and economists have a had a particularly challenging time separating non-recurring distortions from the longer-term underlying economic conditions.
Earlier today, we learned initial jobless claims fell to 331,000, lower than estimates. “According to MNI, the Labour Department reported no special factors but noted that data for Kansas were estimated. as an ice storm forced state offices to close,” said Barclays’ Cooper Howes.
The latest ADP employment report showed fewer than expected workers were hired by private-sector firms. “Cold and stormy winter weather continued to weigh on the job numbers,” Mark Zandi, chief economist of Moody’s said.
The weather has also dampened home sales and home construction. “The housing data over the next few months will likely be difficult to interpret due to the harsh winter weather,” Michelle Meyer said in a note to clients. “We expect the data to look quite weak, but believe it will prove temporary and look for a bounce back in the spring.”
ISM and others have blamed cold weather for the poor manufacturing data. “We can say ignore today’s decline, it is due to inclement weather, but we really have to wait to see if the number bounces back after the weather warms back up in the next few months,” Bank of Tokyo-Mitsubishi’s Chris Rupkey said.
U.S. auto sales also tumbled in January and yet again, cold weather was held accountable for slower retail sales.
From the Journal of Commerce, cited by Dennis Gartman:
“It’s affecting us all,” Jeff Heller, vice president of intermodal and automotive marketing at Norfolk Southern, said in reference to the frigid weather of early January at the SMC3 JumpStart 2014 conference in Atlanta Jan. 21. “We have more failures on the locomotive side, and when we get the trains running, traffic backs up at our terminals.” That was a full week before a three-inch snowstorm caused massive gridlock in Atlanta Jan. 28.”
BAML’s Woo points out that there has been a 48% correlation between Q1 US GDP growth and average Q1 temperature over the past decade. One reason why Q1 GDP growth appears more sensitive to the temperature than Q4 GDP growth is that retail sales are more sensitive to the temperature in January and February, than in December. This most likely is because Christmas shoppers are less deterred by the weather than discount shoppers, he writes.
Of course, this will also make the FOMC’s job harder when it comes to monetary policy changes.
“Despite the recent turn in US data, we would urge caution against over-reaction,” writes Woo. “One of the key lessons we have learned over the past three years is that extreme weather can play a big hand in driving data volatility at this time of the year (e.g., US in Q1 2012 and Europe in Q1 2013) and its effects, while often optically large, are almost always transitory.”
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