Harsh weather tests optimism over U.S. economy

WASHINGTON Mon Feb 24, 2014 6:19pm EST

A woman is reflected in the wet pavement as she walks past a U.S. flag billboard in Times Square during a rare winter thunderstorm in New York February 21, 2014. REUTERS/Carlo Allegri

A woman is reflected in the wet pavement as she walks past a U.S. flag billboard in Times Square during a rare winter thunderstorm in New York February 21, 2014.

Credit: Reuters/Carlo Allegri

WASHINGTON (Reuters) - Unusually cold weather will take a bite out of U.S. economic growth this quarter, but a rebound seems likely on the horizon and expectations for stronger growth this year have not changed.

Economists estimate that freezing temperatures and the ice and snow storms that have blanketed much of the nation will shave as much as half a percentage point from gross domestic product in the first quarter.

That comes on top of the drag from efforts by businesses to sell off bloated inventories and a one-time hit from the expiration of benefits for the long-term unemployed.

"The slowdown is testing everyone's optimism about the economy, but so far it's just a soft patch. The economy will regain strength," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania. "Outside housing, we don't believe the recent data signal a change in fundamentals."

Moody's Analytics is keeping its 3.1 percent estimate for 2014 growth and most other economists are sticking with their full-year forecasts as well, despite data from retail sales to manufacturing and employment that show the economy braked sharply in January.

While housing also took a hit from bad weather, it was already cooling because of higher mortgage rates, a lack of properties to buy, and labor and building material shortages.

And the run of weak data looks set to persist, with severe weather again dominating in February.

"Weather can ... affect the economic data when it departs significantly from seasonal norms," said David Mericle, an economist at Goldman Sachs in New York. "February looks likely to be the harshest month of all this winter, suggesting the worst might be yet to come."

Goldman Sachs expects weather to cut a bit more than 0.5 percentage point off first quarter growth. But Mericle said they look for a bounce back of 0.5 to 0.75 percentage point in the second quarter.


First-quarter GDP growth estimates are currently pegged at or below a 2 percent annual rate, but weather is only part of the story. In addition to housing, consumer spending was also already ebbing late last year.

Not only were retail sales in November and December not as strong as had been thought, export growth has been less stellar as well. Many economists now anticipate the fourth-quarter's 3.2 percent growth pace will be cut to about a 2.5 percent rate when the government revises the data on Friday.

Other factors restraining growth, which economists had already factored into their estimates, include unsustainably high inventories, the end of jobless benefits for more than 1 million people in December, and cuts to food stamps.

Businesses that are working through piles of stocks amassed in the second half of last year are placing fewer orders with manufacturers, which has fueled weakness in factory production.

"A step-down in the pace of inventory accumulation was an inevitable headwind to growth in the first quarter," said Michael Feroli, an economist at JPMorgan in New York.

Inventories are expected to cut off anywhere between 0.5 and 1.0 percentage point from first-quarter GDP.

As for the cuts to jobless benefits and food stamps, they are forecast to take away between 0.2 and 0.4 percentage points.

Most economists believe that the setback this quarter is temporary and expect GDP growth this year will be the strongest since the end of the recession almost five years ago.

But a few, like RBC Capital chief U.S. economist Tom Porcelli, say the economy never had any significant momentum and severe weather could be masking some underlying weakness.

"The rates of growth that we witnessed in the tail end of 2013 are not indicative of the true underlying potential of the economy, which remains of the 2-2.5 percent variety," said Porcelli. "We are also witnessing a reversal to the reality of lackluster growth."

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

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Comments (3)
sabrefencer wrote:
Im sure the horrible weather isn’t helping things..but it isn’t what is killing this country economically…..OBAMANOMICS AND OBAMACARE, are failed policies, or lack thereof…that is the problem…we elected twice, a pied piper and followed him like…well you know….

Feb 24, 2014 4:56pm EST  --  Report as abuse
MarkMulligan wrote:
As I recall all of that Republican tax cutting which we have lived with now for decades was supposed to create new jobs and turbo charge the middle class. Where are the jobs that all of the tax cutting was supposed to create? And why have the super wealthy been the only ones to see real growth in earnings while the middle class stagnated and lost ground over many years?

Feb 24, 2014 11:02pm EST  --  Report as abuse
mvrs768 wrote:
Two things.

First of all the weather has nothing to do with supposed ‘bad’ data because the worst sales data came from the areas with the best weather, which had been not affected by the polar vortex.

Second, the problem isn’t Obamacare or Republican tax cuts or any of that partisan nonsense, the problem is that the financial-economic system is unsustainable. This is patently obvious since 2008 at the latest, but still most people and particularly the media and socalled analysts are in total denial.

Economies simply cannot grow forever. Perpetual economic growth (as in ‘real’ growth, not nominal) is not possible.

Almost every indicator looks worse than six years ago. Sure, the windowdressing hides a lot of this but look behind the data and you will see it. Real unemployment is close to 20%, not 7%. Real inflation, especially fresh foods (fruit, vegetables, not counting the ‘corporate’ food that is without nutrition) is easily into double digits and has been for over two years.

Yet all we get is more free trade deals (which really aren’t about free trade), and permanent bailouts for the rich (ie QE and all that), and endless regulations aimed at protecting corporations from competition.

Wall Street is a collection of crime syndicates that have been given license to steal by the White House (they refuse to prosecute no matter how many rules the Morgans and Goldmans break, or how many times they bet against their own clients).

And yet, none of these ‘too big to fails’ was broken up, not one. Instead, they got even too bigger to failer. Which is related to the campaign contributions they gave the president and their cronies in Congress (rather surprisingly, this time its mostly democrats, republicans usually get bribed by oil, gas and military industrials).

The debts that are out there, especially the federal debt, will never be fully repaid. The stockmarket was blown up into a humongous bubble, plus the Fed is responsible for creating an ‘emerging market countries bonds bubble’ etc…

And yet the media praises the Bernank as if he’s a saint, when in reality everything the Fed did was to make it worse in the long run.

Feb 25, 2014 11:19am EST  --  Report as abuse
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