Will Cold Weather Damage Fourth-Quarter GDP?
By some measures, first-quarter U.S. gross domestic product (GDP) was pummeled by $50 billion due to cold weather and snow. Another snap of similar weather has occurred over the past several days, including one day when at least some part of all 50 states posted temperatures below freezing. As the holiday retail period begins, weather threatens GDP growth again.
Even the White House used weather to explain why first-quarter GDP figures were very poor, higher by only 0.1%:
The first quarter of 2014 was marked by unusually severe winter weather, including record cold temperatures and snowstorms, which explains part of the difference in GDP growth relative to previous quarters. The left chart shows the quarterly deviation in heating degree days from its average for the same quarter over the previous five years. By this measure, the first quarter of 2014 was the third most unusually cold quarter over the last sixty years, behind only the first quarter of 1978 and the fourth quarter of 1976. In addition, there were four storms in the first quarter that rated on the Northeast Snowfall Impact Scale (NESIS). The right chart shows that no quarter going back to 1956 had more than three such storms.
The current quarter may allow the White House to use the defense again.
The Weather Channel remarked that there have already been two periods during which Arctic air hit most of the United States:
A second push of bitterly cold air has blasted its way south and east, bringing extremely cold temperatures for millions of Americans who have already endured nearly a week of January-like chill.
Some of these low temperatures have already set records.
One theory about fourth-quarter GDP is that low gasoline prices will trigger an increase in consumer spending, which is usually about two-thirds of U.S. economic activity. Until recently, there were no counterweights to this positive effect. The situation has suddenly changed as the cold makes it more likely people will stay out of stores and malls. One factor, beyond gas prices, could help the retail industry, however. Unlike the first quarter, if people do not buy holiday gifts by late December, they will have to skip the tradition altogether. That is nearly unthinkable.
Some fourth-quarter trends probably will guarantee an advance in GDP. But the weather could erode some of that growth.