Saturday, June 7, 2014

Weather in Q1 and Q2

Much of the economic commentary has clearly underestimated the effect of severe weather on the United States’ first quarter economic measures, and I am afraid the effect of the comparatively benign weather in the second quarter will also be underestimated. It does seem a little strange to be talking about benign weather when one corner of the country is still locked in a long-term drought, meteorologists just recorded the strongest May hurricane ever, and the betting money is on a “super El Niño” event starting any week now. Yet Hurricane Amanda and its 155 mph winds were not a threat to land, El Niño effects probably will not be felt until July, and the drought, though no less severe, is affecting a smaller area than before. Separately, the United States has had less than its share of tornadoes, wildfires, and floods this spring — and the near-misses tell us the favorable weather was essentially just a matter of luck.

Luck is as good as hard work when it comes to economic matters, and with such favorable weather, the second quarter will look stronger than it really was, just as the first quarter looked weaker than it really was. Compare the two and there will be a sense of a growth trend that isn’t entirely there. The improvement is real in an economic sense, but the part of it that results from the random fluctuations of the weather shouldn’t be taken as a trend.