Every time financial data comes up unfavorably for backers of the administration, pro Obama analysts are quick to blame the weather. Snow and ice are the fall guys when retail sales fall short, construction is down, commodities skyrocket and unemployment decreases.
But what about when the weather is unseasonably warm as it has been across the nation this winter? Does that benefit economics and the stock market?
Here’s one opinion:
Back in early February, Zero Hedge was among the first to suggest that abnormally warm temperatures and a record hot winter, were among the primary causes for various employment trackers to indicate a better than expected trendline (even as many other components of the economy were declining), in “Is It The Weather, Stupid? David Rosenberg On What “April In January” Means For Seasonal Adjustments.” It is rather logical: after all the market is the first to forgive companies that excuse poor performance, or economies that report a data miss due to “inclement” weather. So why should the direction of exculpation only be valid when it serves to justify underperformance? Naturally, the permabullish bias of the media and the commentariat will ignore this critical variable, and attribute “strength” to other factors, when instead all that abnormally warm weather has done is to pull demand forward – whether it is for construction and repair, for part-time jobs, or for retail (and even so retail numbers had been abysmal until the just released expectations meet)…
Which simply means that the past 3 months of strength will be “cash for clunkered” quite soon, as all the soaked up extra demand disappears in coming months.
ZeroHedge then cites a report by Bank of America:
As expected, the February data continue to come in above consensus expectations.
Hot topic: Mild winter weather lowers energy consumption, but boosts almost every other sector of the economy.
Preview: Housing starts are likely to increase, but we expect existing and new home sales to edge lower…
February was a good month for the US economy. In the past week, retail sales, jobless claims and regional manufacturing indexes confirmed the strength already reported for employment and motor vehicle sales. As we have noted before, a variety of tailwinds continue to support growth, but should fade over the course of the spring.
This improvement in part reflects an incredibly mild winter. Average temperatures for December, January and February were the fourth highest since national data started being kept in 1890. According to the National Oceanic and Atmospheric Administration (NOAA), there have been 45 high-impact snowstorms that affected the Northeast since 1956, including five last winter, but none this winter. While the weather has small effects on the economy most of the year, weather has big economic impacts in the winter.
Is a mild winter causing artificial weakness in the economy? And, as such will the spring bring even stronger
We strongly doubt it and we would turn the perma-bull argument on its head. While warm weather hurts energy consumption (and small sectors like the ski industry) mild winter weather stimulates most of the economy. What is striking …is how weak growth has been even outside of energy consumption. Households saved a lot on their energy bills this winter—with a fall in both price and quantity—and despite this windfall, non-energy consumption was weak. In our view, this confirms that consumers remain quite cautious.
Looking ahead, weather is not particularly important in the spring. Hence, even if the weather remains mild, as some forecasters predict, the official seasonally adjusted data will likely drop back to pre-winter levels.
It is likely that the markets will get the weather story wrong on the way in and on the way out. How so? In the near term, the markets seem to be over-reacting to the better February data, seeing an improving trend rather than a temporary blip. Going forward, the markets will likely expect more of the same, only to be disappointed by a second quarter payback. We are particularly skeptical about the idea that the housing market is starting to turn in earnest.
In other words, this whole idea that the economy is improving is a mirage. People are cautious about spending, even after a boost from lower utility bills. Even given all that, the GDP remains weak. Inventories have caught up now, but will there be any demand later?
Right now, President Obama may be getting a boost from this economic picture, but if it comes crashing down in the summer/fall, it may deal him a fatal blow.
Add to this the increasing cost of gas, and it could torch his chances. Wouldn’t it be ironic if this small stretch of “global warming” smacked his and the Democrats’ chances?