Blaming Winter For Economy’s Chill Only Goes Snow Far
Old Man Winter has quickly become a convenient fall guy for the raft of weak economic data hitting the market lately but won’t be able to shoulder all the blame if conditions keep deteriorating.
Three vicious storms that visited the East Coast in February caused more than just mountainous snowbanks and their associated hassles.
They are, instead, being faulted as the primary reason for soft manufacturing, housing and retail results-and most critically the monthly unemployment figure to be released Friday.
“It’s really going to cloud the employment picture this month and it’s going to make the subsequent months’ reports more important,” says Zach Pandl, economist at Nomura Securities in New York. “But the recent data has softened to a greater extent than can be explained by the weather.”
Whereas some economists had expected the unemployment data to start reflecting job growth soon, they now predict job losses of about 55,000-with some estimates going as high as 100,000.
The Obama administration has gone into spin mode, bracing the market for a weak jobs number and telling Wall Street to look beyond the February statistics.
“The blizzards that affected much of the country during the last month are likely to distort the statistics. So it’s going to be very important…to look past whatever the next figures are to gauge the underlying trends,” White
For the moment, investors seem to be taking the bait.
March has gotten off to a solid start as the market has barely blinked at the staggering economy: Existing home sales plunged 7.2 percent in January, jobless claims last week increased to a worse-than-expected 496,000, and the ICSC-Goldman Sachs retail sales index dropped 0.8 percent last week as the nation reeled from one of its snowiest Februarys on record.
Yet not all the bad news can be blamed on nature, particularly in housing where the most recent sales numbers come from the relatively tame January.
“It clearly makes people question the validity of the data,” says Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles. “If you’re in the hospital for one reason and you get sick with something else, it’s not good. As this economy is limping toward recovery, any setback if it’s weather or something else is clearly going to have an outsized effect.”
What’s important, Flam and others say, is that economic signs quickly start improving now that the worst of the weather is hopefully in the past.
“For now the weather is an adequate excuse given the ferocity and how much of the nation it has affected,” he says. “It’s going to be the spring data that’s really going to tell us whether the economy has legs to continue into the second half or if we’re facing renewed concerns about a double dip.”
But while housing may have weaker case blaming the weather, retailers can make a much stronger case.
The February snow scorecard had Philadelphia getting 51 inches, Washington D.C. seeing nearly 50 and New York being hammered with 29 inches.
February is not a huge month for the industry, making it all the more convenient to blame the blizzards.
“You’ve got records set all over the place,” Scott Bernhardt, chief operating officer at Planalytics’, which provides weather information for businesses, told Reuters. “Last year at this time, especially in the East and Southeast, it was basically spring.”
But the lousy retail numbers also show that investors will need a strong stomach to get through some of the winter contagion.
Tom Higgins, chief economist at Payden & Rygel in Los Angeles, predicts the job losses will be closer to 100,000, a number that would be sure to rattle Wall Street.
“The market is not going to like that,” Higgins says. “Hopefully with the March numbers you’ll see that weather effect fade. That will be the way to check whether the weather played a meaningful role.”
At the same time, the winter stumble also could serve as a reminder that the economy is far from ready to roar and is capable of getting thrown off track by most any disruption.
“Some in the double-dip came view this as confirmation that the economy is softening,” Higgins says. “Nothing has really changed… We don’t think we’re headed for a double-dip recession, but we think growth is going to a long, slow slog.”