In the wake of two strong waves of unusually severe winter weather here in the Southeast—including enough ice here in Atlanta to all but shut down the roadways, even for the most experienced drivers—my colleagues and I have been spending some time looking into the possible implications of such disruptive weather for our economy.
Yesterday in his speech at Mercer University in Macon, Georgia, our boss here at the Atlanta Fed, Dennis Lockhart, pointed out that the recent spurt of unusually harsh winter weather is helping to cast a bit of a shadow on estimates of underlying economic conditions at the start of 2014:
Mixed incoming data on economic activity in December and January have raised concerns about whether the economy has traction at [the] faster growth pace [that we saw in the second half of 2013]. There appears to have been a slowdown. Weather effects may very well have dampened retail sales, auto sales, housing starts, manufacturing activity, and of course transportation, among others.
In fact, the REIN (Regional Economic Information Network) team at the Atlanta Fed reached out to our contacts across the Southeast to try to get a read on the impact of the winter storms on regional business activity. A strong majority of our manufacturing contacts confirmed weather-related disruptions as a result of the storms, as employees were unable to make it to work on icy roads. Reports indicated that overtime work or increased production would make up for the lost output during the outages in the weeks following the storm. In other words, though manufacturers did indicate that, on net, production for the first quarter would likely not be affected by the storms, the forward shift in the timing of that production may skew seasonally adjusted data for output and hours worked in the region downward in the first month or two of the year.
And it wasn't just manufacturers who reported a weather-related dip in activity. Reports from construction and agricultural contacts were mixed. Merchants in the region were more downbeat, reporting a decline in sales growth at the start of the year, which some contacts attributed to the unusual weather. Contacts in the fashion and apparel industry were particularly concerned about the implications of the storms on yearly earnings, noting that cold weather keeps shoppers inside and that even once the temperature picks up, it is unlikely that the increase in sales will be sufficient to make up for revenue lost during the cold spell.
All in all, it appears that the weather could certainly put some downward pressure on reports of economic growth for the first two months of 2014. The full impact of that effect—and how lasting the recent signals of softness will be—can only be assessed once we have more hard data in hand. President Lockhart summed up his views yesterday:
...the current quarter is difficult to read as an indication of the most likely story for the full year 2014 and first part of 2015. The recent mixed data could be just a temporary thing—as the weather explanation suggests—or something more fundamental going on. While I am tracking the numbers carefully, at the moment I think it's too early to draw a conclusion. Even though the first quarter this year may turn out to be soft, I am "looking through" the recent information to a full year of sustained higher growth. In that sense, my outlook remains optimistic for the full year.
By Laurel Graefe, Regional Economic Information Network director at the Atlanta Fed