As writer Kim Hubbard once observed, “Don’t knock the weather. If it didn’t change once in a while, nine out of ten people couldn’t start a conversation.”
And so it has been on Wall Street this year, where the impact of the coldest winter in 25 years has been the most hotly debated variable in a frigid economy that is still trying to get its footing.
Sure, weather changes, and most winters in a large swath of the northern US are typically miserable.
Trouble is, this white winter, with 38 inches of snow in Manhattan, is a black swan — a surprise event whose effects will only be fully comprehended in hindsight.
“How is it possible that a record 40,000 flights were canceled in January (another 300,000 failed to take off on time) — four times the number we see in a typical January? This is having a profound influence in the economic data which are seasonally adjusted to take into account normal winter weather, not severely abnormal winter weather,” says David Rosenberg of Gluskin Sheff.
Estimates of the cost of flight delays alone and the lost working hours associated with them come in at $2.5 billion dollars in January. According to Bank of America, every 1 degree Celsius drop in average temperatures in the first quarter is associated with an average 1.5 percentage-point damper on GDP growth. If that maxim holds up this year, look out below.
Frigid temperatures are also particularly vexing for retailers, since sales in January and February are far more discretionary and therefore more sensitive to nasty weather than in the weeks before Christmas.
Of course, a spring fever of economic activity could soak up a lot of the demand lost to the wicked weather, but don’t count on it. So far this year, the bond market — typically a better barometer of the economy than the stock market — has been forecasting a slowdown.
Spring shoots may break quickly through the frozen tundra in a few weeks, but the bond market isn’t betting on it.