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Warm Weather Did Boost Economy Goldman Finds, Will Now Be A Drag

Tyler Durden's picture




 

While last winter every downtick in corporate earnings was promptly "explained away" by executives using the harsh weather excuse, one has heard not a peep from companies on the topic of an abnormally accommodative climate over the past 4 months. And why would they - after all it would mean that any gains, not that there have been many as most companies have reported below average results, have been artificially boosted by one-time events. Needless to say, the mainstream media would rather not touch this topic with a ten foot pole: there is an election to be won and the public can not be disturbed with facts (heaven forbid someone should mention seasonal adjustments - that's a death sentence). Which is why ironically we have to go to Goldman, which as noted recently, has once again turned bearish on the economy for one reason or another, to quantify the impact of the balmy winter. "Reported growth in the CAI is 2.8% for December and 2.9% for January. The estimates here imply that excluding the effect of warm weather, growth would have been 2.5% in December and 2.5-2.7% in January. Note that although January was very warm relative to seasonal norms, this followed a gradual warming in temperatures in October through December. We think our estimates of the weather impact may be on the low side, given that snowfall was also below seasonal norms this year. Lower precipitation can raise activity in some sectors. Our estimates imply that a normalization in temperatures could be a modest headwind to growth over the next few months. The extent of the drag depends on the specification, but a plausible range would be 10-40bp in March if temperatures return to seasonal norms by that month." Looks like Newton was right after all, despite all attempts by central planners to deny reality.

From Goldman Sachs:

Growth Impact of a Mild Winter

We have shown in previous research that atypical weather patterns can have short-run effects on many economic indicators (see for example Andrew Tilton and Seamus Smyth, “What’s With the Weather?” US Economics Analyst, January 12, 2007). Today’s report on personal income and spending for January was a classic example: real personal consumption expenditures on services were depressed in part because warm weather caused households to spend less on home heating last month. In cases like this, warm winter weather reduces economic activity. In many other cases, mild weather is a net positive for growth. For instance, our research has shown that warm weather seems to boost construction spending and nonfarm payroll employment. The Federal Reserve’s Beige Book also noted this week that warm weather had lifted residential real estate activity and tourism in some areas. In this US Daily, we use our Current Activity Indicator (CAI)—a statistical summary measure of real activity—to estimate some simple rules of thumb for the impact of weather conditions on overall growth.

A widely used metric of national weather conditions is the index of Heating Degree Days (HDD) produced by the National Oceanic and Atmospheric Administration (NOAA). The HDD index is a population-weighted measure of how far temperatures are below a benchmark level. For each day, the NOAA measures the number of degrees by which average temperatures fall below 65 degrees, and then totals them for each week or month. Therefore, colder temperatures imply higher values for the HDD index.

By this measure the winter of 2011-12 has been exceptionally mild (we discussed this issue earlier in Andrew Tilton, “’Tis the Season for Seasonal Adjustment.” US Economics Analyst, January 13, 2012). Exhibit 1 shows the difference between the HDD index for each month and the average for that month over the previous five years. This measure has been below zero—meaning temperatures have been above the trailing five-year average—in every month since October, and temperatures have become increasingly warm (relative to the seasonal norm) in each subsequent month. January was especially warm across the country, with an HDD index reading more than two standard deviations from the norm.

To measure the relationship between atypical weather and economic growth, we estimated a few simple regression models relating our CAI to the HDD index. We used two specifications: one including only the CAI and the change in the HDD measure, and another which also included two lags of the CAI. Which specification should be preferred is not immediately obvious. On the one hand, the CAI displays clear evidence of persistence, so it is natural to include lags of the dependent variable in the regression. On the other hand, in the case of weather-related shocks, we would not expect the impact on activity to persist for very long. And in fact our earlier work found negative “payback” effects from weather shocks for many indicators. We therefore show both results, and consider them to be the likely range of possible effects.

The chart below summarizes the results, showing the contribution to annualized growth in the CAI from changes in the HDD index. In both regressions, a one standard deviation change in the HDD index implies a 20 basis point (bp) impact on annualized growth for the month. For the model including lags of the CAI, the impact shown in the chart is a simulation starting in October relative to a baseline in which temperatures remained in line with their five year average (i.e. no deviation in the HDD index shown above). In this model, the effects are larger and there is less payback later because positive effects from the weather shocks are assumed to persist. For the model without lags, the chart shows the simple static impact on the CAI of changes in the HDD index for each month. For February, we have estimated heating degree days based on weekly data available through February 25. Thereafter we assume weather conditions return to normal.

The estimates suggest that warm weather added about 30bp to growth in our CAI measure in December (both models are consistent for this month) and 20-40bp in January. Reported growth in the CAI is 2.8% for December and 2.9% for January. The estimates here imply that excluding the effect of warm weather, growth would have been 2.5% in December and 2.5-2.7% in January. Note that although January was very warm relative to seasonal norms, this followed a gradual warming in temperatures in October through December. Our models are based on changes in the HDD index, and therefore show a smaller impact in January than otherwise would be the case (a sudden warming in temperatures in January would have lifted the CAI by 50-60bp, according to the models). Finally, we think our estimates of the weather impact may be on the low side, given that snowfall was also below seasonal norms this year. Lower precipitation can raise activity in some sectors.

Our estimates imply that a normalization in temperatures could be a modest headwind to growth over the next few months. The extent of the drag depends on the specification, but a plausible range would be 10-40bp in March if temperatures return to seasonal norms by that month.

 

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Fri, 03/02/2012 - 11:41 | 2216790 SilverTree
SilverTree's picture

Tornadoes in Alabama today.

Fri, 03/02/2012 - 11:50 | 2216811 JPM Hater001
JPM Hater001's picture

Bullish.  Even a broken window helps the glassman.

Circular flow bitchez.  Break something and save Amerika!

Fri, 03/02/2012 - 11:41 | 2216791 Taterboy
Taterboy's picture

I followed GS's advice and was long copper, then I realized they said,"Coppertone".

Fri, 03/02/2012 - 11:41 | 2216792 taniquetil
taniquetil's picture

Of course, average Joe thinks that Obama's energy policy is the reason why their heating bills are so low.

Fri, 03/02/2012 - 11:42 | 2216795 Bunga Bunga
Bunga Bunga's picture

They can blame Q2 on (missing) snow.

Fri, 03/02/2012 - 11:49 | 2216808 Manthong
Manthong's picture

just one word..  are you listening?

Drought.

Fri, 03/02/2012 - 11:43 | 2216796 LawsofPhysics
LawsofPhysics's picture

Destruction is bullish for all at the top of the current facist system.  long energy sector and physical assets.  Going to take a lot of energy to sort this all out.  

Fri, 03/02/2012 - 11:44 | 2216798 firstdivision
firstdivision's picture

I can tell you that the warmer than average winter temps have killed us in the energy industry.

Fri, 03/02/2012 - 11:46 | 2216805 LawsofPhysics
LawsofPhysics's picture

Just wait for all the air conditioners to come on.

Fri, 03/02/2012 - 11:56 | 2216829 firstdivision
firstdivision's picture

That is assuming that we will have warmer than normal temps for summer.

Fri, 03/02/2012 - 12:00 | 2216844 Flakmeister
Flakmeister's picture

There has been a bit of a trend over the past few years in case you didn't notice....

Fri, 03/02/2012 - 11:45 | 2216803 Village Smithy
Village Smithy's picture

Warm weather may in fact have boosted the economy, but I'm thinking the 4 trillion in debt issued over the past few years had some impact as well.

Fri, 03/02/2012 - 11:49 | 2216809 Mercury
Mercury's picture

Not for the ski industry it didn't!

Fri, 03/02/2012 - 11:55 | 2216824 lizzy36
lizzy36's picture

Looks like the solution is  QE3.

Fri, 03/02/2012 - 11:57 | 2216831 firstdivision
firstdivision's picture

Ben Bernanke will make it rain on the bitches!

Fri, 03/02/2012 - 13:03 | 2217026 SheepDog-One
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Keep thinking it....never happen.

Fri, 03/02/2012 - 13:37 | 2217158 JW n FL
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lizzy36

I am a jew.

I come from a large family of Eastern European Jews.

Some observant, some not.

NONE OF US LEARNED THIS CRAP.

It is racist, anst-semtic, 3rd reich scapegoating, CRAP.

I believe in free speech. I try and stay out of ignorant, racist, lowest common denominator debates. However, if i believe that the debate has become disrespectful, to Zerohedge and what it stands for, i will have the debate temporarily halted. That is not a threat, it is a statement.

 

http://www.zerohedge.com/news/next-leg-ponzi-revealed-central-banks-begin-buying-us-stocks-outright-starting-today#comment-2215694

 

Let that be a Lesson to ALL! of You Goy Slaves! It is a Statement! of Authority!

Freedom of Speech!

And Censorship of the Truth!

Are at her finger tips!

 

Honestly! You Goy Slaves should have known better than to Anger Your Owner Lizzy!

 

If this sounds familiar! Here is why! Barbra Specter and Lizzy have that same “Jewish Authority over the Rest of us Goys!” We Goys can be silenced whenever it suits our Jewish Masters! And that is NOT! a Threat.. Per Lizzy! That is a Statement! See the video below and see if you can as well recognize the similarity between Barbra and Lizzy? Maybe Lizzy is Barbra? Who knows.

http://www.youtube.com/watch?v=k2Vq_e2Z1ug

 

and for those of you wanting to know.. TruthInSunshine

 shares these views of Lizzy’s! and backs up Lizzy’s power to Silence the Goy Slaves! Truth be Damned!

 

Given the Fact that Lizzy has used Lobby Dollars with Tyler.. to provide herself with a Bully pulpit! And of course more sway than the rest of us.. Because of the Lobby Dollars.. I would implore you Goy Slaves to behave.. shy away from the Facts and the Truth for fear of being politically incorrect by AIPAC’s Standards!

 

It should be as well noted that Tyler has been threatened with a Law Suit for Liable! By the Jewish Lobby here at ZeroHedge!

 

The Truth it seems will not set you free! With regard to your Jewish Owners!

 

Let this be a lesson to ALL of You Goy Slaves!

 

Let us ALL! try to NOT! get Tyler or Fight Club in any Trouble.. even if the FACTS! Are being put forth for discussion!

 

Thank You for Your Time!

 

P.S. You will notice that 50,000 plus reads and over 600 comments later that Lizzy Allowed the Goy Slaves to have their Rant! LULZ!!

 

Fri, 03/02/2012 - 12:21 | 2216900 cranky-old-geezer
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Any reported growth in the economy is from inflation these days.

There is no real growth in the economy.  It's shrinking steadily.  We're somewhere around  -7% GDP adjusted for inflation.

You never hear "adjusted for inflation" anymore.  They would never admit inflation is the only reason numbers look positive.  They would never admit the economy is actually shrinking month after month and we're slipping deeper into economic depression (not recession).

Fri, 03/02/2012 - 12:54 | 2217003 bugs_
bugs_'s picture

Early spring fever.

March showers bring April flowers.

Enjoy!

Fri, 03/02/2012 - 13:26 | 2217113 Seasmoke
Seasmoke's picture

its been very bearish on the bees buzzing around last week.....now all dead on the back deck

Sat, 03/03/2012 - 11:09 | 2219553 cnhedge
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another reason to short djia. 

http://www.jinrongbaike.com/
http://www.cnhedge.com/

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