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Sluggish economy? Blame the weather

Ignore economics writers who make grand conclusions about short-term data

July 7, 2015 2:00AM ET

Economists and economic reporters tend to get carried away about short-term movements in the economy. They often assess data without considering the larger context, which can lead them to exaggerate the good or bad news. And since most economists and economic reporters move in herds, we get dramatic tales of booms and busts in the business section that don’t necessarily correspond to anything in the real world.

We were treated to one such artificial boom late last year and at the start of 2015. It was based on positive economic data in the second half of 2014 that showed the economy growing at a 4.1 percent rate through the last three quarters of 2014. MSNBC headlined a web piece, “U.S. economic growth soars, reaches 11-year high”; Newsweek headlined a Reuters piece it ran, “Boom: U.S. economy takes off in the 3rd quarter.” The usually astute columnist Matt O’Brien told readers: “The economic boom is still very much alive.”

This bout of euphoria quickly faded with the winter frost. Suddenly, commentators were complaining that consumers were no longer prepared to spend the way they used to. A Washington Post piece speculated that consumer psychology had been permanently changed by the 2008-09 recession. The Wall Street Journal went a step further with one of its economics reporters writing a column to “stingy American consumers” begging them to spend more money. (Incidentally, the latest data show that American consumers are spending more — although probably not as a result of a letter from the Wall Street Journal.)

There is a banal explanation for this rapid switch from boom to bust, as well as for the original boom itself: the weather. The weather was unusually bad throughout the Northeast and Midwest this year, and snowfall in major metropolitan areas such as Boston hit new records. When it’s cold, when there’s a lot of snow on the ground and when the streets are blocked, people are less likely to go out to dinner or shop for clothes. They are also likely to put off buying a car or looking for a new house. As a result, consumption is likely to be much weaker than would otherwise be the case.

Of course, Boston and dozens of other cities get snow almost every winter; this routinely disrupts peoples’ regular consumption patterns. That’s why our data are seasonally adjusted; it doesn’t matter that we get six inches or a foot of snow in the Northeast if that’s what was expected. It only skews the numbers when we get six feetof snow, which was the case in Boston this year. So when winter is worse than usual, the economy — in real life, and particularly in the papers — suffers.

The decline in GDP in the first quarter was due to the weather, not the underlying weakness of the U.S. economy.

The end of last year’s economic boom, and the subsequent slump in consumption, was therefore simply the result of an unusually difficult winter. It did not speak to permanent damage to consumers’ psyche; in fact, consumption is quite high relative to income at the moment.

Weather not only explains the end of the boom: It also explains the boom itself. In the first quarter of 2014, bad weather led to a sharp slowdown in consumption spending and an actual decline in construction. In addition, a brief federal government shutdown caused government spending to shrink in the quarter. The result was a decline in GDP of 2.1 percent in the first quarter of the year. But this decline virtually guaranteed sharp growth in subsequent months. After all, the people who put off buying a car in January or February because of the snow didn’t decide they weren’t going to buy a car, they just decided they would buy one later.

Then, in the second quarter, consumption of durable goods, the category that includes car and other expensive items like stoves and refrigerators, grew at a 14.1 percent annual rate. It grew at a 9.2 percent annual rate in the third quarter. This sort of uptick from an unusually weak quarter was the basis for the boom that widely touted in the business press.

We are about to go down this path again. The decline in GDP in the first quarter was due to the weather, not the underlying weakness of the U.S. economy. This means that when the economy recovers in the second and third quarter of this year, growth will be considerably faster than its trend rate since we are making up the ground lost in the first quarter.

This is a totally predictable story for anyone who follows the economy closely. Unfortunately, many of the people who write and speak about the economy don’t know much.

We are likely to hear a lot of nonsense about the economy’s extraordinary growth and a new boom in the second half of this year. Be prepared to ignore it.    

Dean Baker is co-director of the Center for Economic and Policy Research and author, most recently, of The End of Loser Liberalism: Making Markets Progressive.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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