Digging Ourselves Out

How do storms affect the economy?

Photo: Jeroen Kransen. Source: Wikimedia

As winter storm Quinn buries the Northeast, it’s worth asking how storms impact the way we live. In past years this was an obvious question. After all, in an agricultural society, unusual weather has a direct impact on food production. In 1815 Mount Tambora erupted in Indonesia. The resulting ash cloud caused 1816 to be “The Year Without a Summer.” In New England, over a foot of snow fell in early June, and there was a killing frost in mid-August. On Cape May, New Jersey, five consecutive nights of frost were reported in mid-summer. That winter cattle starved for lack of hay, and people sustained themselves on boiled nettles and roasted porcupines.

As the economy shifted to an industrial production, people became less dependent on month-to-month changes in the climate. Year-round activity was imposed on a summer-winter schedule, but vestiges of our agricultural history are still around. We still have school schedules that give kids the summer off so they can work in the fields. Financial stresses often hit in the fall, because our banking system used to need a lot of cash at harvest-time to pay farmers for their produce.

But in our consumer-economy, the weather still has an effect, especially on retail sales. Usually an isolated storm like Quinn just causes us to delay our plans. What we don’t buy this week we’ll make up next week. But when storms run into holidays, like Easter or Memorial Day, some of those purchases never happen. Last year’s warm, dry winter meant that a lot of winter clothes were never bought and planned ski vacations were cancelled and never re-booked. That can impact overall economic growth.

Nighttime view of developing nor’easter, March 6, 2018. Source: NOAA.

The National Oceanic and Atmospheric Administration sponsored research that indicated that weather events can reduce our economic output by up to $500 billion per year. Different states have differing levels of vulnerability. New York was seen as the most vulnerable; Tennessee the least.

But preparation helps. As we dig ourselves out and follow the snowplows around, we can be thankful that we were ready. Because what’s really disruptive isn’t the weather, but the surprise.

Douglas R. Tengdin, CFA

By |2018-03-08T06:52:38+00:00March 8th, 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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