Is The Weather Helping The Economy?

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Some economists think warm weather may be to thank for a recent smattering of positive economic data. But University of Pennsylvania economist Justin Wolfers says there's an alternate theory: that the sun is putting a false shine on the economy.



Here's a brief weather roundup from parts of the country this past week: 80 degrees in Chicago, gulfing in Minnesota, an ice-breaking mission on Maine's Kennebec River was the shortest in recent memory, because the Coast Guard, they couldn't find any ice.

On a national average, this has been one of the four warmest Februaries on record, and economists happen to be following these weather reports very closely. Justin Wolfers from the University of Pennsylvania is one of those economists. And, Justin, how's your summer going?


JUSTIN WOLFERS: One funny thing I can tell you as an Australian, every time I see blue skies, I put on shorts, which has actually been a bad rule of thumb through many an East Coast winter.

RAZ: OK. Shorts or not, Justin Wolfers says the good weather may be helping consumer confidence, but he also says some economists are floating the idea that the warm weather may be putting a false shine on the recent positive economic data.

WOLFERS: People are worried that the statistical procedure used to adjust for seasonality may have been making the data look unusually good. The logic of this is the economy created in fourth quarter of 2008, and what those statistical procedures do is they then think, oh, if the economy crated in winter three years ago, maybe we expect it to crater in winters generally. And so maybe we're overly adjusting for the winter effect. So people would just worry the strength may just turn out literally a statistical artifact.

RAZ: So now, why does the government have to make seasonal adjustments to economic data?

WOLFERS: So there are enormous seasonal cycles, which aren't just about the weather. We all spend a lot in the run-up to Christmas. Chocolate sales spike around about Easter. And, in fact, the seasonal cycle, the ups and downs in economic activity through the year are just enormous. And actually, these are completely separate than what we normally think about, which is the ups and downs between recessions and booms.

In reality, the U.S. economy has a small recession and a small boom every year due to seasonality. What we want to do, what we want to try and figure out whether the overall economy is in a real recession, a real boom, is you want to look through those seasonal ups and downs and see if there's anything deeper going on.

RAZ: OK. A recent report that was in Businessweek pointed to data in February. Normally, in February, apparently 485,000 workers don't show up for work because of bad weather. This past February, it was 178,000. That sounds like a huge difference.

WOLFERS: Yeah, but actually the thing to realize is even so the way we compile our employment statistics, those folks were all still counted as employed. They're employed, but they're not at work this week because of bad weather. So what you heard just there is actually just a different way of measuring the weather. One way is to look at the thermometer and another way is to look at how many construction workers turn up to work. So it's the same effect again, which is just that it's been an unseasonably warm December, January and February.

RAZ: So are you saying that it's been even slightly helpful, the warm weather, for the economy?

WOLFERS: Absolutely. So maybe economic growth is running a quarter-point faster than it otherwise would. I suspect economic growth right now is round about 3 percent. Maybe without the weather, it'd be running at two and three quarters. And it's one of the reasons why I've been watching the early March data so closely. Definitely seeing sun in January and February was a surprise for all of us. Seeing the sun in March is less surprising, and so therefore the boost is less big.

But so far, the early numbers for March and all we're really seeing so far are initial unemployment claims and consumer confidence, but they all still look really good. So it looks like it wasn't just an unseasonably warm winter.

RAZ: That's Justin Wolfers. He's an economist at the University of Pennsylvania, talking about the weather and the economy and how they interact. Justin, thanks so much.

WOLFERS: It's a pleasure, Guy.

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