“Frozen” isn’t just a hit Disney movie, but a description of the U.S. economy in Q1. But this economic “performance” was no comedy and the initial GDP estimate came in at a paltry 0.1%. This caused economists to go into full panic mode and to question when economic growth will resume.
And to this I say: Chill. Okay, that’s not the right term in this instance. Alright then: Thaw. As in the economy on some days in January and February was literally frozen. Snowstorms, blizzards and bitter cold shut down economic activity in some locations and severely limited commerce in others.
Some economists claim that the anemic Q1 GDP “can’t all be blamed on the weather”. I guess that’s true, but this was the most economically damaging winter since 1978. And 35 years is too long for anyone to remember how that works (similar to forgetting how a recovery looks in my previous post).
It is very difficult to measure the full impact of the weather in Q1. I don’t have insight to how all industries were impacted, but I do have insight on how the commercial trailer industry fared. I estimate that January production was reduced by 10% due to weather related factors. Production was slowed also in February to a lesser amount. The trailer industry is very representative of the U.S. manufacturing as a whole.
Another measure was the capacity constraints that showed up in the FTR freight measurements in Q1. For example, YRC said Q1 freight flow displacements including service delays, pattern changes, and productivity losses, reduced profit by approximated $20 million. Shippers had trouble
moving goods during the severe
weather conditions (no surprise there) but when freight doesn’t move
productively, commerce gets restrained and economic growth suffers. This may be a simple concept, but it is
something the government bureaucracy should be aware of when the slew of
planned trucking regulations start to hit.
|There were many unexpected "Ice Road Truckers" this winter|
Further evidence of the weather impact is the government data reporting non-farm productivity fell 1.7% in Q1 after being up 2.3% in Q4, 2013. Manufacturing hours dropped 1.4%, and remember, Q4 numbers are impacted by the holidays. Yes, the weather had a huge impact on manufacturing.
Weather issues also impacted the consumer side. When you are “snowed in” you are not out “consuming”. You are not going to restaurants, you are not shopping, you are not purchasing services, and you are not traveling. Some of this business is recovered after the thaw, but not all.
The other thing you see is a slew of economic good news after conditions returned to “normal”. Retail sales, auto sales, manufacturing, industrial production and the leading economic indicators all started flashing positives. The Economic Cycle Research Institute (ECRI) Weekly Leading Growth Index has been steadily climbing since the end of February. Of course some of this economic energy is catch up from the “ice age”, but not all. I believe this “restart” will provide momentum for stronger growth in the second half of the year.
Unfortunately the news about Q1 is expected to get worse. Economists analyzing the data expect Q1 GDP to be revised downward and of course that would mean it goes negative. This will lead to more wailing and gnashing of teeth about the economy. But this is the equivalent of feeling uncomfortable now about how cold it was in February. It is much better to concentrate on the good things happening in the present and the forecast for the future.
As the hit song from “Frozen” proclaims: “The past is in the past”. The economy was very weak at the start of year, but it’s time to let it go.
This post first appeared on the FTR website. FTR is the leader in analyzing and forecasting the commercial transportation industry. For more information on FTR reports and services, please click here.)