Frigid winter takes toll on U.S. economy
By Andrew Freedman From Mashable
The harsh winter weather is taking a toll on the U.S. economy, with companies such as Panera Bread and United Airlines reporting a hit to their bottom line.
They have endured more than twice the average snowfall to date, as well as frigid temperatures that have not been seen in some locations in three decades. The result? Bad business and a suffering economy, according to earnings reports and other economic indicators. The net effect of the cold and snow has been a widespread case of cabin fever, which means people are eating out less, shopping less and spending less money.
The good news is the economic outlook for retailers and restaurants should brighten considerably once the winter weather eases, according to Paul Walsh, vice-president of weather analytics at The Weather Company. However, he said lately, “It’s like armageddon from a weather perspective for retailers.”
Walsh added that retailers can expect a resurgence in spending in the spring, which is traditionally a more crucial sales period, compared with February. “Cabin fever is real. People are hunkered down across the Northeast and Midwest,” he told Mashable. “When this finally breaks — whenever it breaks — there’s just going to be a resurgence I think.”
“People are just dying to get out.”
With several weeks of winter weather left to go, Chicago has already experienced its fifth-snowiest winter on record; Philadelphia has had its third-snowiest winter on record; and Indianapolis was hit with its snowiest winter on record, besting every year all the way back to 1884.
What’s more, January temperatures were among the top 10 coldest on record in several Midwestern states.
NASA satellite image from Jan. 6, 2014, showing air temperatures in the lower atmosphere. On that day, temperatures reached record lows in many parts of the eastern U.S., NASA said.
In a sign of the severe winter’s broader economic impact, the U.S. Department of Commerce announced Wednesday that national housing starts had their biggest drop in almost three years in January. The department said housing starts dropped 16% to a seasonally adjusted annual rate of 880,000 units, which was the lowest level since September 2013. This was the largest percentage drop in housing starts since February 2011, according to CNBC. Economists had expected housing starts to be at around a 950,000-unit rate in January.
Restaurant chains have been particularly affected by the inclement weather. On Wednesday, Panera Bread blamed the weather for reducing customer visits, and lowering earnings below expectations. Panera said sales at company-owned cafes were down by about 2.2% since Jan. 1, according to Yahoo News. The Cheesecake Factory also reported a reduction in sales due to the weather.
For their part, airlines have dealt with one of the worst winters on record in terms of delays and cancellations. Multiple storms at several hub airports, including Chicago, Atlanta and New York, coincided with new federal airline regulations that mandate greater crew rest times; this led to cascading delays and cancellations.
Airlines canceled 75,000 domestic flights this winter — the most in 25 years, the Associated Press reported. United Airlines previously said it may not be able to make up some of the lost revenue from this stormy season, CNBC reported.
Some economists have said economic growth in the first quarter may be reduced by about 2% due to the impacts of the rough winter on manufacturing, housing and retail sectors. In addition, job growth in recent months has fallen below expectations. Only utilities benefited from the cold weather due to higher energy prices, according to CNBC.
So far, Wall Street has not been quick to punish companies for disappointing earnings, instead anticipating a spring economic bounce. It is also debating the weather’s actual impact on the economy, as well as the more unsettling question of how much of the slowdown may actually suggest systemic economic problems.
The Weather Company’s Walsh said earnings reports from McDonald’s and Burger King show that the companies met Wall Street’s expectations globally, but fell short within the U.S., indicating more of a weather-driven reduction in demand than expected. “My gut is that a lot of this softness, probably more than people think, is related to weather.”
He added that the best metric for weather driving consumer demand is not absolute temperature, but rather the change in temperature. So, once temperatures rebound from the teens and 20s into the 50-degree Fahrenheit range, consumer demand will likely climb steeply because the weather will feel warmer to people.
“I’m pretty confident that the retail economy is going to ultimately benefit from this [harsh winter],” he said.
PHOTO: A letter carrier delivers the mail through fresh snow in Olmsted Falls, Ohio on Feb. 18, 2014.IMAGE: MARK DUNCAN/ASSOCIATED PRESS
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