Snowflake Economics

Does winter make economic activity more difficult?

Photo: Aaron Burden. Source: Unsplash.

We hear it every time a storm hits: “Winter storm ‘Wilma’ cost the US economy X billion dollars.” But is this true? Yes, I may be late getting into work because I was shoveling out my driveway and brushing off my cars. And yes, people drive more slowly on the highway and the airports are jammed. But in our information economy where folks can work from home and malls are closing because we all shop online, do slippery roads and delayed flights really make a difference?

The short answer is, yes they do. The biggest impact is on workers who earn an hourly wage. Over half the workforce in the US is paid by the hour, and if they don’t show up, they don’t get paid. Those lost wages ripple through the economy. The marketplace also takes a hit from lost sales at restaurants and travel dislocations. While the airports may be jammed with stranded passengers, the airlines don’t earn anything if folks can’t fly. Airlines have been rescheduling more flights before the storms hit, but some of those cancelled flights are never made up.

Photo: Agarre16. Source: Wikimedia

There are two major impacts from winter storms: disruption and lost productivity. When our plans get disrupted, we may not simply reschedule. If we were planning an evening celebration the night of a big storm, it’s not certain that we’ll go out to dinner the next chance we get. Plans change. The disruption from a series of snowstorms and deep freezes the winter of 2013-14 actually caused the economy to shrink in the first quarter. But those disruptions are temporary.

The longer-term effect of winter storms is on productivity. Workers that normally improve or fix roads need to plow them. Instead of serving customers or updating inventories, store clerks have to shovel off the sidewalk. Money spent on rock salt or road chains can’t be spent on improving computer systems or providing better service. It’s true that countries in norther latitudes are just as productive – or more so – than those closer to the equator, but lots of factors affect this.

Per capita GDP by country, 2015. Illustration: Rossenne. Source: Wikimedia

Winter storms are a cost of doing business, and we can adapt to them – even if we complain about them. The most important thing to remember about winter storms is to do what the Boy Scouts suggest in their scout motto: be prepared.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-01-18T07:29:36-04:00January 18th, 2019|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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