There were the usual trite, forgettable highlights in the just released beige snow book, which as summarized by Bloomberg, had the following highlights:
- FED: ECONOMY EXPANDED IN MOST REGIONS MID-FEB. TO END-MARCH
- HIGHER RETAIL SALES REPORTED BY MAJORITY OF REGIONAL FED BANKS
- BEIGE BOOK: LABOR MARKETS STABLE OR SHOWED MODEST IMPROVEMENT
- REGIONAL FEDS NOTED MODEST UPWARD WAGE AND PRICE PRESSURE
One can ignore all of the above, because the only word that matters in the latest beige book was one: "Weather"
Here is a chart summarizing the mentions of "weather" since January 2014
- Weakening activity was attributed in part to the strong dollar, falling oil prices, and the harsh winter weather.
- Residential real estate activity was steady to improving across most Districts, although there was some slowing in housing starts due to abnormal seasonal patterns owing to the harsh weather.
- The auto industry remained a source of strength in Cleveland and Chicago. Contacts in Boston, Philadelphia, Richmond, and Dallas believe harsh winter weather had a dampening effect on activity.
- Demand for transportation and freight services was mixed. Freight haulers in Cleveland reported that volume has declined from the high levels seen late last year. They attributed it to harsh winter weather and fallout from the labor dispute at California ports, which lessened shipments to the District.
- Among retailers, the outlook was generally optimistic in Boston, Philadelphia, Atlanta, St Louis, Kanas City, and Dallas. Many Districts noted that savings from lower energy prices are helping to drive retail sales this cycle, as is the improving weather situation.
- Auto sales rose in most Districts during the cycle period. Reports from Cleveland, Atlanta, and Chicago indicated that lower gasoline prices were causing consumers to shift from cars to light trucks or SUVs. New York and Philadelphia reported that sales had bounced back in March from the harsh winter weather in February.
- Tourism and travel started to rebound from the harsh weather seen in the winter months.
The punchline comes from a rare moment of lucidity courtesy of Bank of America.
Is weather the main reason for recent weak economic data? While we would love to blame the weather for all of our bad forecasts, in reality it is hard to pin down weather effects. A recent paper from the Chicago Fed—“The effect of winter weather on U.S. economic activity”—is the best attempt we have seen in recent years. They look at detailed data on snowfall and temperature by state and for the nation as a whole. The results show that weather effects can have a significant impact on local employment and housing activity, however, when you add it up for the nation it becomes very hard to quantify. Looking back at the very severe winter of 2013-14 they find that bad weather can only explain part of the weakness at the start of the year.
This puts us in an awkward spot today. There is a bit of an urban legend that weather can explain all of the weakness in the first quarter of last year and hence could explain all the weakness today. However, hindsight is always 20-20. In real time, the slowdown last year was a major surprise to economists even though we get data on the weather before we get data on the economy. Moreover, this winter is not nearly as bad as last winter—last year we had three bad months, this year only February was unusually bad (Chart 1). Economic fundamentals point to stronger growth ahead, and that remains our forecast. However, we can’t completely explain the recent weakness and hence there is a risk that growth does not pick up.
The good news that being in an "awkward spot" has never stopped economists from fabricating utter nonsense to explain why a $17 trillion economy is literally at the mercy of snow.... in the winter.