First, a shout-out to my wife, Nora, who’s been stuck with the snow for the past two weeks while I’ve been traveling. She’s done a lot of work and a great job, and I am extremely grateful. Happy Valentine’s Day, sweetheart!
The bad weather has actually been an occasion for good karma. I’ve spent quite a bit of time over the past couple of years helping neighbors clear snow; it’s just the right thing to do for a lot of reasons. Yesterday, while waiting at the airport, I got a delighted text from Nora that someone had plowed our driveway, and when she and Jackson got home, the job was largely done. That was a wonderful surprise. Karma works, although sometimes it can take a while.
I’d argue that the same will apply to the economy. We’ve had the coldest January and February since 1994, with unprecedented terrible weather around the country. Not just in New England (where, frankly, we expect it) but into the deep South, where snow is unheard of. Not just once, but over and over again. How can that not have an effect?
And yet, even as many economic indicators—employment, industrial production, retail sales—are coming in below expectations, consumer confidence continues to recover. Employment, despite lower-than-expected jobs reports, actually continues to strengthen according to other measures that are less affected by the weather. Even retail sales are doing better than might be expected.
Let’s look at a specific case: auto sales. This number was down 2.1 percent in January and 1.8 percent in December, apparently due to the weather. From a fundamental perspective, it makes sense—who wants to go out and test-drive a car in a snowstorm, not to mention walking around the lot? From a supporting data perspective, it also makes sense if we consider other retail sales numbers. If this continues, it will be a drag on the economy. So, will it continue?
Consider two things: incentives from manufacturers, particularly GM, are coming back in a big way, and financing is becoming more available. It’s getting easier and more attractive for buyers to come on down—and the buyers need to. Remember, “YOU can buy a new Chevy!” I must hear that ad five times a morning on the radio.
The average age of cars in the U.S. is now well over 11 years. Think about that: it means roughly half of all cars are more than 11 years old. I don’t care how frugal you are—and Americans aren’t noted for frugality—but clearly there is pent-up demand here. The growing availability of financing and incentives will act to make that demand actual, despite the short-term disruption from the weather.
Similarly, the ongoing recovery in Europe—where fourth-quarter growth came in ahead of expectations, with even France moving back to growth—will support U.S. manufacturing and exports.
The housing recovery will also continue to drive growth. I saw a good sign from a bank the other day that sums up the situation pretty well: “Congratulations on the new house! Now you need new furniture!”
Overall, unless you believe that people weren’t really affected by the weather (and I know I was), the current streak of weak economic data is something to be aware of but not too concerned about. The underlying trends remain pretty solid, and the most probable course is continued recovery.
Now if I could just get the damned ice out of my driveway so I could go shop.