Polar vortex economic shock wave

It’s 85 degrees in Minnesota, and the polar vortex is still sending shock waves through the news cycle.

Today’s Commerce Department reports that first quarter GDP shrank by 1 percent due to extreme winter weather may be one of the clearest examples of just how closely weather and the economy are linked.

Chicago’s Lake Michigan frozen in place during this winter’s polar vortex. Scott Olson/Getty Images

Here’s a snippet from Forbes.

New data shows the U.S. economy contracted in the first quarter of this year,  keeping pace with shifting expectations but down sharply from the prior — already disappointing — estimate.

On Thursday, the Bureau of Economic Analysis’ second estimate of  real gross domestic product showed output produced in the U.S. declined at an annual rate of 1% in the first quarter of 2014. This is relative to fourth quarter 2013, when real GDP increased 2.6%.

Forbes with annotation by Paul Huttner/MPR News

Here’s more on the decline and the link to extreme winter weather from MSNBC.

Economists attribute most of the decline to the abnormally cold weather, and they anticipate that the economy will come back stronger than anticipated this quarter.

“I believe this real GDP decline, mostly due to the polar vortex, coiled the ‘economic spring’ even tighter for a sharp snap-back (boing!) this quarter, where I have an above-consensus forecast for a 4.0% annualized rise in real GDP,” said PNC Chief Economist Stuart Hoffman.

Planalytics

Weather driven demand

Weather and climate have real impacts on our economy. The mechanics of the polar vortex’s extreme cold and snow pushed retail sales down as people hunkered down in extreme winter weather. Icy roads, cold and snow slow shipping and travel. Supply chain and inventory disruptions kick in.

Here’s an interesting breakdown of weather driven demand from Planalytics.

What is Weather-Driven Demand (WDD)?

  • The measured impact of weather on comp sales (“lift” or “drag”)
  • It is a numerical representation of the consumer need for a product or service caused by perceived changes in the weather at a time/location intersection
  • It does not include any factors other than weather (e.g. price, competition, etc.)
  • Expressed as percent change from the previous year, either favorable (positive) or unfavorable (negative) for each product or service (e.g. “foot traffic”)
  • Derived through detailed analysis of product demand, correlated to weather data, and presented at the week and location level

It is estimated last winter’s polar vortex may have cost the U.S. economy as much as $5 billion. Here’s an interesting perspective from HuffPost.

Hunkering down at home rather than going to work, canceling thousands of flights and repairing burst pipes from the Midwest to the Southeast has its price. By one estimate, about $5 billion.

The country may be warming up from the polar vortex, but the bone-chilling cold, snow and ice that gripped much of the country — affecting about 200 million people — brought about the biggest economic disruption delivered by the weather since Superstorm Sandy in 2012, said Evan Gold, senior vice president at Planalytics, a business weather intelligence company in suburban Philadelphia.

While the impact came nowhere close to Sandy, which caused an estimated $65 billion in property damage alone, the deep freeze’s impact came from its breadth.

“There’s a lot of economic activity that didn’t happen,” Gold said. “Some of that will be made up but some of it just gets lost.”

It’s easy to miss the big picture connections between weather, climate and our economy. Thursday’s GDP numbers may have made that link more clearly.