The economic snow job

It’s funny to discuss this when we just had an 80-degree day yesterday, but the recent reports showing the economy grew at a snail’s pace in the first quarter of 2015 were blamed to some degree on the terrible winter weather we had, just as the contraction we endured in Q1 2014 was also blamed in large part on a tough winter. (So much for global warming, huh?) But is that really the problem?

Robert Romano at NetRightDaily did some quick analysis and found that there was some legitimacy to the argument, though not much. Now if I were to take a shot at it, I would come to a different conclusion.

In most of the nation, winter is already “priced into the market,” so to speak. We know that most northern regions of the country will have two to four bouts of significant snow, which will prove to be a disruption for a day to a few days. During the most recent winter, Boston was the unlucky recipient of huge snowfall in the latter half of the season – early on, it was an area considered in a “snow drought.” These fickle factors tend to average out over time, so I don’t think weather is the true issue.

So let’s look at a different factor. In the last quarter of the year, consumers spend a large part of their disposable income on holiday gifts. Stores ramp up their hiring during that time of year, usually picking up the pace in October so their new personnel is trained in time for the Black Friday crush of shoppers.

Once Christmas has passed, though, there’s necessarily a decline in consumer spending because people are tapped out after the holidays – they maxed out their credit cards or, if they were one of the dwindling few employees who received a holiday bonus, that money was spent. Moreover, many who were hired for the holidays are let go, meaning they have to tighten their belts as well.

In short, the first quarter of the year is spent catching up on bills and the family budget – the old “Christmas Club” bank account is a relic of a bygone age. And unless they filed relatively early, tax refunds often don’t arrive until the quarter is almost over.

But Romano also makes the point that the economy hasn’t seen consistent growth in over a decade:

(T)he economy has not grown above 3 percent since 2005, the longest sustained slowdown in output in U.S. economic history since the Great Depression.

Once upon a time 3% annual growth was considered almost recessionary  – just like the “experts” wrung their hands over 5% unemployment during the Bush 43 years – but now both these factors are cause for a happy dance.

I think the truth is that we have distorted the market so badly that economic growth like we had 30 years ago isn’t possible without significant changes in policy. The amount of manipulation being made by the Federal Reserve and Wall Street (but I repeat myself) has placed us in a situation where all eyes watch these two entities like hawks, peering for a sign that interest rates will return to normal or quantitative easing (which has propped Wall Street up for several years, leading to market highs) will come to an end. This balancing act can’t go on forever.

So our economy sputters along, sometimes firing on all cylinders but more often in a near-stall. It’s not the weather, folks.