Wednesday, February 24, 2010

Winter Weather, Consumer Confidence, and Local Budgets

At street level, the U.S. economy is showing only faint signs of stabilizing. The past month will look atrocious when the economic statistics come out, as weeks of snow cover in the northeast quarter of the country discouraged people from going out of the house for most of four weeks and put a damper on the economy. More than half of the U.S. population was affected by this series of weather events, as the winter weather began with a freeze in central Florida. The snow and cold surely reduced many households’ spending by 20 percent for the quarter. This is an effect large enough to drag down GDP for the quarter by 1.5 percent, which would be widely reported as a 6 percent decline because of the way journalists like to report GDP in annual rates. A report of a 6 percent decline, if that comes to pass, will sound disastrous enough to have people predicting a depression again. It’s a conversation that is sure to diminish the already low confidence of consumers in the economy.

The weather may already have dampened consumer confidence, which was reported yesterday at levels close to the lowest levels of the recession. Harsh winter weather affects consumer confidence at many levels. The weather directly changes people’s moods and introduces obstacles and frustration in daily activities. At the same time, higher heating bills put a damper on consumers’ ability to spend. The heavier use of fuel for heating turns into higher fuel prices. The cost and effort of snow removal put a strain on consumers’ budgets and schedules, and they also strain local government budgets.

This may lead local councils to cut back the already austere budgets they adopted in December for the year that has just started. Other governments are early in the planning stages for a fiscal year that runs from July to June, and the current deficits, compounded by the costs of snow removal, will weigh on their minds as they prepare the new budget.

The only possible result is further cuts in essential government services. KYW has a story listing the challenges facing the Philadelphia budget, which is due to be announced at the beginning of March, and the same story is being repeated in cities and towns across the region and in most of the country.