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