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ANALYSIS: ECONOMY

Weather or Not

The warm winter changed hiring patterns and skewed the course of the recovery. The brutal summer will restore equilibrium.

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Chill out: The heat wave won’t change much.(AP Photo/Steven Senne)

This summer has been a scorcher so far. Get-thee-to-the-nearest-popsicle hot. Record-breaking temperatures swept from Denver to Raleigh over the Fourth of July week. Last Saturday, the wheels of an airplane stuck to a soft spot on the tarmac at  Reagan Washington National Airport that had been broiling in the sun all day. The past 12 months were the warmest in the contiguous United States since the National Oceanic and Atmospheric Administration began collecting data in 1895, the agency said this week. The temperatures have affected the economic recovery in 2012 by skewing what’s expected and when, but things will likely return to normal this summer, even as the heat persists.

Unusual winter temperatures generally have a greater impact on the economy than atypical summer ones. People curtail certain activities that matter to the economy, such as shopping or building, when it gets extremely cold. They are less likely to do so when it’s blisteringly hot, according to Andrew Tilton, senior U.S. economist at Goldman Sachs. “It has a lot to do with the simple inability for certain activities to take place in the winter,” he says. It’s much easier to sweat through outdoor work when it’s sweltering than to put a roof on a house during a snowstorm.

 

But an uncommonly warm winter—January 2012 was the fourth-hottest on record, and the first six months of the year were the warmest ever—can affect the economy, too. In 2007, after a 70-degree January day, Goldman Sachs analysts compared deviations in weather patterns to weather-related economic variables, such as consumer spending and new-home construction. The data showed that deviations from the winter norm affect a broader range of variables than departures from the summer norm. “During [a typical] winter, you’ve got certain parts of the country where the weather normally is bad, and therefore it’s too cold to do outdoor things like building houses and [undertaking] certain construction work,” says Nigel Gault, chief U.S. economist at IHS Global Insight. When that bad weather doesn’t materialize, “some of those activities don’t have their normal winter slowdown, so you get extra people working in construction or weather-sensitive areas.”

As hiring that typically occurs in the spring is pushed up to winter, spring becomes something of a “payback” period, lacking the usual burst of activity when the snow thaws. Bureau of Labor Statistics data are seasonally adjusted to temper large but expected variations in the nation’s labor force that result from normal changes in weather, major holidays, and school terms. This year was unusual, so the seasonal adjustments based on last year’s weather make 2012’s distortions look especially dramatic, with so many unexpected winter jobs.

An extremely hot summer like this one, however, won’t have the same effect on payrolls. Work rolls on, even as temperatures soar. As spending on electricity or consumer goods climbs, the heat could affect other economic indicators, such as consumer spending, but several economists tell National Journal that the overall economic impact is muddled. “As far as how it comes through in travel plans or other ways that people are either staying inside or going out more, I think it’s pretty hard to pin,” says Jeffrey Greenberg, an economist at Nomura Securities International. “I don’t see it being as clear cut as, you know, ‘There’s no snow on the ground; let’s start this project early.’ ”

 

Economists zeroed in on other effects of heat, such as crop prices (IHS Global’s Gault) and utility bills (Goldman’s Tilton). But their overwhelming response was that heat waves don’t have huge economic effects, particularly on employment—even when it’s so hot all you want to do is stay indoors, hugging a Slurpee by the air conditioner.

Severe summer storms are another story. A derecho, or long-lived windstorm, like the one that hit the Washington region last month, could affect payrolls if hazardous road conditions or lack of electrical power keep people home for several days. And if that occurs during the week of July 12—the pay period that BLS uses as a reference point for the two surveys that make up its monthly jobs report—a derecho could show up in the next monthly employment report by lowering the weekly-hours figure. Still, overall employment counts everyone who is paid for work during that period, even for just one hour. People would have to be out of work and without pay for an entire pay period not to be counted as a result of bad weather. The payroll effects of even a major summer storm would likely be minimal.

The heat isn’t expected to relent this summer. The National Weather Service’s Climate Prediction Center’s latest three-month outlook shows above-average temperatures lingering across the country. So, hit the pool and take comfort that even though the mercury is rising, it’s unlikely to bring more heat to the country’s already-disappointing labor market figures.

This article appears in the July 14, 2012 edition of National Journal Magazine.

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