So you’re in the #enoughalready camp with all this bitter cold, snow, ice and resulting traffic messes?
Wednesday’s weaker-than-expected ADP private-sector jobs report was the latest piece of economic news that was chilled by unseasonably harsh weather. (See also car sales, manufacturers’ purchasing managers survey, among others). Bank of America Merrill Lynch figures that we just had the coldest January since 1988 and notes that the National Weather Service is calling for a colder-than-usual February.
As investors try to gauge how this could affect Friday’s big jobs report, the firm’s analysts offer a sobering thought: Cold in the first quarter hurts the economy more than cold in the fourth quarter. They calculate that every one degree Celsius (1.8 degrees Fahrenheit) below normal in the quarter has been associated with a 1.5 percentage point decrease in GDP since 2004.
“One plausible explanation of why Q1 GDP growth appears more sensitive than Q4 GDP growth to temperature is that retail sales are more sensitive to temperature in January and February than in December. It is not clear why this is the case, but it is possible that Christmas shoppers are simply less likely to be put off by the weather than discount shoppers in January and February. That said, employment data and housing markets appear less sensitive to the weather in Q1 than in December (some good news).”
The cold does appear to bite into December hiring. Its analysts note that over the past 10 years variations in December temperatures can account for half of the variation in employment gains.
Still, economists aren’t good at accounting for the weather, whether warmer or colder than usual. On average, temperatures in December that are one degree below the historical norm have led to the month’s nonfarm payrolls tally falling 38,000 below the consensus, they note. For more on how much forecasts tend to miss, see this chart:
The bottom line at B. of A. Merrill: financial markets may struggle to see through this unusually cold winter, even if the effects are transitory.
– Silvia Ascarelli
Follow Silvia @SilviaAscarelli
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