Trying to interpret economic data these days is a bit like trudging to class through the snow. There are a lot of obstacles to get through before you accomplish anything. Let’s begin on February 6, when the Wall Street Journal reported that the recovery is looking good with jobless claims falling and worker confidence increasing. Smooth sailing, at least until seven days later when WSJ experts indicated that a worrying sign had appeared as weekly jobless claims increased. This complete 180 induced a handful of articles fretting about low February growth and predicting an even slower recovery going forward. It seems they forgot that labor market turbulence and declining retail sales early in the year is expected due to the many shortened workweeks (this week included thanks to President’s day) and weather volatility.
There is no doubt that a lot of the nervousness following the past few weeks can be attributed to the weather. In fact, I believe that nearly all of it can. This simply isn’t an ordinary winter, or one that was predicted by economic forecasters. Last week, the U.S. Department of Commerce reported that retail sales fell 0.4% from December (see full report here). In particular, motor-vehicle and parts sales were down more than 2%, and different retail markets were down somewhere in the 1% range depending on the industry. According to WSJ authors Josh Mitchell and Sarah Portlock, “it’s more than just the weather that’s behind the malaise.”
It can’t be understated that this is not just another winter putting a freeze on the economy. In fact, Detroit’s January was the snowiest on record. Combine that with being the 15th coldest month ever, and its no wonder consumers are forgoing their trips to their favorite department stores. Restaurants and bars also have taken a hit this winter, as chilly consumers opt to cook and spend their evenings at home. The astounding part of 2014’s cold start is the huge scale of its impact. Sure, Detroit residents are used to chilly, snowy evenings. But how about Atlantans?
“Jake Maguire, a 28-year-old from Atlanta, said snowstorms there have kept him and his friends away from their favorite restaurants and bars, which they frequent multiple times each week. Instead, they’ve opted to hang out at home, in front of the fireplace, drinking their own hot toddies—a hot drink with whiskey—and cooking whatever was on hand.”
-Mitchell & Portlock, WSJ
Jake, like so many others, has stayed in and saved his money this winter. For me, hearing that the retail economy has only suffered a 0.4% decline from a gift-giving December is almost good news. Sure, it’s a short-term contraction, but the Fed seems to agree that economic conditions are continuing to improve as it plans to move forward with its tapering into March. Labor markets have had a minor setback as many construction projects and outdoor work has had to be postponed, but these projects will come when the snow goes. So while reports may continue to flip-flop their forecasts for the next couple of weeks, it’s important to take it with a grain of salt. The economy, and hopefully the weather, will soon heat back up.