It’s So Cold Out You Can See It In Economic Statistics

There’s cold weather, and then there’s weather so cold you can see it on a thermometer and even in the economic data.

The winter storms that blanketed the country in snow and ice from New Mexico to Maine in January and February were large enough to affect the entire U.S. economy. Economists saw effects of the unusually cold weather in natural gas prices and retail sales, for instance, and predict ripple effects in areas like housing in the coming months.

Economic fallout from the weather is hardly unusual, but the culprit is often hurricanes, not a cold snap. Unlike hurricanes, the severe winter weather did not destroy vast amounts of infrastructure—but it did keep people indoors and out of stores and restaurants, which was enough to impact the economy.

“The winter storm that swept across much of the nation at the end of January will temporarily depress economic activity and generate volatility across a range of indicators,” Matthew Martin, senior U.S. economist at Oxford Economics, wrote in a commentary. “Taken together, the combination of widespread cold and meaningful snowfall suggests this storm could rank among the more economically disruptive winter events of the past several decades.” 

For instance, harsh weather may have contributed to the nosedive in January vehicle sales reported by the Bureau of Economic Analysis last week.

“Unit vehicle sales plunged to a three-year low in January, probably due in part at least to the harsh winter storm, which likely weighed on spending more broadly,” economists at Pantheon Macroeconomics wrote in a commentary.

Car Sales Slow, Natural Gas Spikes

“The drag on auto sales likely reflects the fact that car purchases typically require shoppers to travel to a dealership and test-drive vehicles, which they are less likely to do during a snowstorm,” Jessica Rindels, an economist at Goldman Sachs, wrote in a commentary.

The drag on overall retail sales could be minimal because shoppers tend to stock up on food and other supplies before storms hit.

As people cranked up the heat, natural gas reserves dwindled and prices shot up. The week ending Jan. 30 marked the biggest inventory drawdown of natural gas since the Energy Information Administration started keeping track in 2010, the EIA said Tuesday. Wholesale gas prices rose 81% in January from December, and the EIA bumped up its forecast for prices this year to be 25% higher than its previous estimate.

Homebuilding Will Take A Hit

The cold weather will have a more serious impact on housing construction in the coming months, and will drag down residential investment growth to -3% in the first quarter, Rindels predicted.

“The colder- and snowier-than-usual weather will weigh on upcoming data releases, though snowstorms tend to have less impact on economic data than other natural disasters because they typically reduce activity without causing widespread damage that is costly and time-consuming to fix,” Rindels wrote.

Forecasters expect the economy, as measured by Gross Domestic Product, to bounce back from the downturn in subsequent months, as people make up for the shopping they didn’t do while stuck inside. Unless, that is, there is more bad weather.

“Although winter storms can temporarily depress economic activity, with the timing so early in the quarter, we don’t expect it to leave a large dent in Q1 GDP, as any lost output is likely to be made up in February and March,” Martin wrote on Monday. “Though additional large winter storms or any additional cold spells, such as the one that hit the Northeast this weekend and sent temperatures well below zero, could delay any bounceback until Q2.”