Storm Warning?

Can winter storms sink the economy?

In the US we’ve seen an extremely cold, stormy season as Winter Storm Pax bears down on the Northeast. In the UK high winds and heavy rains have displaced thousands and interrupted power to hundreds of thousands. Can all these physical storms lead to economic storms?

They certainly used to. When our economy was more dependent upon agriculture, unseasonable weather could threaten the harvest and lead to massive problems: food shortages, bank failures, and even starvation. In 1816 there was frost every month of the year in New England, which contributed to a financial Panic in 1819 and an economic depression in the early 1820s.

But weather today is more of a nuisance than a threat. Heavy storms and cold weather make it hard to get to work, but they bring overtime pay to those who operate plows. During a storm people sit home and hunker down, but prior to a storm many stores sell out of ice-salt, snow shovels, and generators. And the damage caused by a major storm can lead to a surge in construction activity, as people clean up and rebuild.

Big storms can temporarily disrupt our lives and cause personal tragedy. But we live in a large, diversified economy where consumption delayed is not consumption denied. What we don’t spend on gas we pay to the guy plowing the driveway. These bumps in the road won’t send us into the ditch.

Douglas R. Tengdin, CFA

Chief Investment Officer

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