Wintry Weather Can’t Stop the Plow Horse Economy

snow-horsesFrigid weather struck most of the U.S. in December and January. So did economic weakness, at least if you believe the way some analysts interpret the latest data. Is the weather really at fault or is it just a convenient excuse?

Consider what we know. Government data showed an unexpected 0.4% decline in retail sales for January. The December and January employment reports both showed less job creation than economists had forecasted. Last month’s housing starts had the sharpest decline since early 2011.

Weather certainly has an impact on consumer activity. Imagine what happens when your family decides to stay home and watch Netflix instead of venturing out in the cold to reach a theater. You don’t buy popcorn, you don’t burn any gasoline, and you don’t stop for pizza on the way home.

Not all weather-related sales are lost forever. You probably won’t go visit dealer showrooms in a blizzard, but if you really need a car, you will go later. People stranded in airports because airlines cancelled their flights eventually find their way home. The house you want to buy will still be there next month.

To the extent that cold weather simply postponed some decisions, springtime gains will probably offset the winter weakness. The fact that winter is cold should surprise no one. Many economic reports are “seasonally adjusted” to account for normal cycles.

I see one curious item in the data. Housing starts fell hard nationally in January, but actually rose in the snowy Northeastern U.S. This doesn’t fit the weather-related economic impact narrative. Homebuilders must have had other reasons to reduce building activity. This could be significant if it continues into spring.

For now, the plow horse is shivering but still in motion. The slow but steady growth is pulling the economy forward – and the stock market higher. Corporate profits are still growing. Almost all of the S&P 500 stocks have reported earnings for the last quarter of 2013. The vast majority are exceeding estimates and forecasting more growth in 2014.

Bearish rhetoric is keeping equities at very reasonable valuations, too, setting up for potentially further price gains later this year. The economy is moving forward, and no blizzard can stop this progress.


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