Make no mistake, there’s been no shortage of discussions about the weather this year in economic circles which is ironic because as we’re fond of reminding you, the only people worse at their jobs than weathermen, are economists.
Weather was a frequent go-to scapegoat for poor data earlier in the year as forecasters (the economic kind) seem to be perpetually amazed by snow in the winter (of course that’s nothing a double adjustment to the data can’t fix). Things got even weirder in September when Citi suggested that the Fed shouldn’t rely on weak jobs data in August and September when it comes to setting policy at its September meetings because the bank’s economists had discovered some “residual seasonality” (the term made popular by the San Francisco Fed with a Steve Liesman assist) in the data. What the Fed should do, Citi said, is assume the data is actually better than it looks and count on an upward revision. Ultimately, Citi blamed the “faulty” data on “summer.”
Just a month after that, the same Citi and BofAML as well blamed unseasonably warm October weather for poor October retail sales. As BofA put it, “we believe abnormal weather patterns may have biased retail ex-auto sales lower in October. There has been a late start to the winter this year: the average temperature in October was 57.4 degrees Fahrenheit, which is the highest since 1963 and above the historical average of 54.3 degrees. Intuitively, this would depress sales of cold weather apparel, such as coats, hats, boots, etc.” To which we said this: No, BofA, there is nothing “intuitive” about that statement. No one would notice a three degree difference when they walk outside and even if they did, it wouldn’t keep them from buying a "hat".
Well going into the winter, there’s rampant speculation about the push and pull between El Nino and those factors that could serve to create another harsh winter for the US northeast. Here’s more from Bloomberg [10]:
The snow in Siberia has piled up again, and according to one theory this means cold and ice are on the way for New York and other parts of the eastern U.S. That is, if the snow can wrestle El Nino into submission.
Before the match starts with El Nino, here’s a recap of how the whole winter outlook thing works: It all starts when a large expanse of Eurasia is covered by snow by the end of October, said Judah Cohen, the theory’s author and director of seasonal forecasting at Atmospheric and Environmental Research in Lexington, Massachusetts.
That creates a pool of cold air and strong high pressure over Siberia. The result is a chain reaction that eventually ends up with a shift in the Arctic Oscillation, a difference in pressures over the polar region, and people in Manhattan risking frostbite if they leave their faces uncovered. At least, that’s the theory.
However, as he looks forward, Cohen said the winter of 2015-2016 will be different from past years for one big reason -- there’s a strong El Nino in the equatorial Pacific and it’s playing havoc with weather patterns all over the world. It may even trump the Siberian snow effect.
“It’s still a huge wild card,” Cohen said.
“In this winter’s case, the El Nino is way too strong,” said Matt Rogers, president of the Commodity Weather Group LLC in Bethesda, Maryland. The theory “would be interesting to talk about in other winters, but not this one.”
Yes, but “not this one.” This is going to be the year when we have a mild winter as El Nino triumphs over Siberian snow and that, according to Goldman, will be good for US economic output. Here’s what the bank's David Mericle had to say in a note out today:
Existing studies suggest a range of possible impacts on the US. Estimates from a recent IMF study, adjusted for the current El Niño, imply a boost to US growth of just under 1 percentage point over a year, though less than 10% of the estimated effect is “direct,” with the remainder coming via foreign spillovers. An earlier study of the 1997-1998 El Niño estimated a net economic benefit totaling 0.2% of GDP, with most gains accounted for by reduced heating costs, increased consumption, and avoidance of natural disasters (the study’s estimated net benefit is not comparable to a GDP impact, which would be smaller).
We next estimate the economic effects of El Niño on US growth and inflation this winter.
We’ll spare you the rather convoluted analysis which is filled with plenty of caveats (and do note that here, milder weather is supposedly associated with more consumer spending even as Citi and Bof just blamed mild weather for less consumer spending) but this, ultimately, is the conclusion:
In short, while much uncertainty remains, weather conditions in line with historical norms for an El Niño roughly as severe as the current one could provide a small boost to growth this winter.
[11]
So make a mental note of that in case the Northeast ends up buried under 20 feet of snow again only to see economists turn around and blame cold weather for "unexpectedly low" Q4 and Q1 GDP prints.
But the most amusing thing about this is that it is apparently all about the weather now, so we wonder, when the Fed goes to make its decision next month, will Janet Yellen base her vote on how big of a coat she has to wear when entering the Eccles Building? And further, if the El Nino-economy link does play out, will the Fed then show the same skepticism towards the stronger data as they do when weather effects supposedly contribute to weaker numbers?
And meanwhile, this is what's really happening:
Bottom drops out by next weekend as Arctic cold finally blasts across Lower 48. Not as bad as last November 18th. pic.twitter.com/9eCkNi6Ckg [12]
— Ryan Maue (@RyanMaue) November 12, 2015 [13]
