santaThe warmth and subtle humidity in the air stirs emotions as one envisions heading to the ball park for opening day, preparing for the start of a new fishing season, or produces visuals (perhaps with dread) of how that new swimsuit or bikini will fit. Oh wait, it’s December 22nd! The northeast part of the United States feels like spring, it has been this way all through the month of December. While quite enjoyable and enabling a number of extra runs, outdoor tennis, and pleasurable strolls through the park, the weather is unseasonable enough to impact typical economic seasonal patterns. It’s been somewhat of a running joke in New York City: “Don’t worry it will eventually get really cold, it always does!” Adages be damned, as Mother Nature has surprised us all. Of course there are still another 9 days in December, but it looks safe to say that no bitter cold will arrive in time for Santa. Early estimates by the National Oceanic and Atmospheric Administration and Weather Trends International are that December will be 4-6 degrees warmer than average this year across the country. This deviation will be even greater in the northeast.

Weather changes are normally ignored when analyzing economic and market data. The weather changes in a similar manner each year so there isn’t a need to really think about weather changes much when scrutinizing y/y growth rates. Moreover, most economic statistics agencies have complex seasonal adjustment techniques which account for calendar shifts and the typical seasonal impact on economic data. Weather only becomes an issue when there is a large deviation from what is normal which renders seasonally adjusted figures less meaningful. With December being the largest month of the year for retail sales, analysis of the weather will be a significant factor in determining consumer strength this year. If it is a good holiday season it likely would have been a super season if the weather was normal. If the season is lackluster, well perhaps it would have been ok if December cold came like it normally does. While most sales aren’t impacted by the temperature, sales of items like coats, hats, mittens, scarves, snow shovels, rock salt, and space heaters certainly are. Remember that a 5% growth rate would indicate very strong holiday sales while a 2% growth rate would be a disappointment. All that needs to happen is for the weather to impact about 2-3% of overall purchases to have an outsized impact on growth rates. This is likely to be the case this year, and it will be very tricky for both retailers and investors to adjust for. One quickly falls into the realm of hypothetical sales, and “woulda-coulda-shoulda”.

Housing starts and construction data are likely to be positively impacted in December as there are a greater number of outdoor workdays than what is typical at the start of the winter. Home sales could be positively impacted as it is easier than normal to get around and shop for a house. Energy demand could be impacted which would also have a positive economic impact if lower demand helps contain energy prices broadly. There are a number of layers of complexity to any attempt to precisely analyze weather impact. Retail sales have seemed adequate thus far through the holiday season but many retailers were likely counting on the cold to arrive before Christmas Eve to help spur seasonal sales. It may not happen this year and this is something to be aware of when analyzing sales data for the holidays and month of December (released in the first half of January).

Enjoy the holidays and stay warm, errrr cold!

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