Snow Job: Peter Schiff

Peter Schiff / Gold Seek

Economists, investment analysts, and politicians have spent much of 2014 bemoaning the terrible economic effects of the winter of 2014. The cold and snow have been continuously blamed for the lackluster job market, disappointing retail sales, tepid business investment and, most notably, much slower than expected GDP growth. Given how optimistic many of these forecasters had been in the waning months of 2013, when the stock market was surging into record territory and the Fed had finally declared that the economy had outgrown the need for continued Quantitative Easing, the weather was an absolutely vital alibi. If not for the excuse of the bad weather, the entire narrative of a sustainable recovery would have been proven false.

Remarkably, this optimism was largely undiminished when the preliminary estimate for first quarter GDP came in at a shocking minus one percent annualized. This number, almost four percentage points lower than the forecasts from the end of 2013, hinted at an economy on a path toward recession. Still, the experts brushed off the report as a weather-related anomaly.

In contrast, I spent the better part of the last five months arguing that the weather was a straw man. I saw a fundamentally weak and contracting economy being artificially propped up by Fed stimulus, illusory accounting, and massive federal deficit spending. However, while it is difficult to precisely measure the effects of bad weather on the economy, a fresh look at the historical data does tell me that a bad winter usually has an economic effect, but not nearly enough to support the oversize excuses being made by our leading pundits.

According to Rutgers University’s Global Snow Lab, the winter of 2014 was one of 18 winters in which North America experienced demonstrably “above the trend line” snow accumulation since 1967 (this is as far back as Rutgers data goes). But there were at least eight winters in that time period that had more snow than in 2014. So it would be a stretch to say that this past winter made a greater impact than the average of the 10 snowiest winters since 1967. Cross-checking those winters with corresponding GDP figures from the U.S. Bureau of Economic Analysis (BEA) reveals some very interesting conclusions.

In general, first quarter (which corresponds to the winter months of January, February, and March) shows annualized GDP growth that is in line with other quarters. For instance, since 1967 average annualized 1st quarter growth came in at 2.7%, slightly above the 2.55% for the average 4th quarter, and below the 2.8% in 3rd quarter and 3.4% in 2nd. But when winter gets nasty, the economy does slow noticeably in the first quarter. So, to that extent my initial analysis likely underestimated its impact. The bad news for the apologists is that the drag is not nearly enough to explain away the current lethargy.

The average annualized GDP growth for the 10 snowiest winters (not counting 2014) was just .5%. This is more than two percentage points below the typical first quarter. It’s also more than two percentage points below the average annualized growth for the 4^th quarters that preceded those 10 snowiest winters. This is important, because the economy tends to develop in waves that occur outside of the weather cycle. So based on this, we can conclude that the snow of this year likely shaved two percentage points from 1^st quarter GDP growth.

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