Chillin’

What effect does cold weather have on the economy?

Low temperature forecast for 1-2-18. Source: Weather.gov

Temperatures across the country are bitterly cold. We haven’t seen an extended cold-snap like this for several years. And some sectors of the economy will be hurt: construction spending and retail sales come to mind, while utilities, fuel-oil sales, and auto repairs will do better.

The trend away from physical stores towards online shopping should accelerate. No one wants to go out when it’s this cold. But everyone likes to shop. Online stores offer the ideal substitute: retail therapy while wrapped in a warm, snuggly comforter. What are we buying? Winter clothes and comfort food. The longer this cold snap continues, the more cocooning we can expect.

Photo: Viktor Hancek. Source: Picjumbo

But these are just short-term effects. A much larger factor is credit. If individuals and businesses have to spend a lot more on heat and shelter, that will affect their ability to borrow – to borrow for education, for mortgages, or business expansion. Cold weather increases many of our fixed costs, which gives us just a little less margin. Money spent on heating oil can’t be spent on eating out.

But over the very long term, there’s no evidence that warmer regions have better economic performance than colder areas. New York and Minneapolis have just as strong growth as Atlanta and Dallas. Milan isn’t intrinsically more productive than Stockholm. People can adapt to changes in their physical environment. Regional differences in economic and market performance have a lot more to do with policies and people than with frigid temperatures and short days.

So grab a cup of hot cocoa and wait for the thaw. Consumption delayed – by storms and freezing temps – will not be consumption denied.

Douglas R. Tengdin, CFA

By | 2018-01-02T07:06:33+00:00 January 2nd, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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