Living in Southern California weather normally does not have much influence in our daily lives. Other than a few days a year when it rains hard, or we have a major heat wave, weather seldom causes us to alter our activities. However, weather in the rest of the country can cause significant disruptions in people’s lives.
This past winter was unusually cold and snowy for much of the country. During this time economic data was being reported weaker than expected. This was causing some to question whether our economy was weaker due to the weather, or could this be the early signs of an impending recession.
In addition many companies were pre-announcing disappointing results for the first quarter. Actual figures for those who have reported thus far have been fairly mediocre. Weather is an easy excuse for businesses to use, but oftentimes weather may not be the culprit for a company reporting an earnings shortfall.
The stock market, which can be a gauge of the future direction of the economy, has been giving mixed guidance. After a stellar 2013 the market has been in a seesaw pattern this year, giving little indication as to which way the economy may be heading.
An astute observer might think that economic activity would normally be weaker in colder weather. However, economic data is seasonally adjusted, in that it is expected that certain categories, such as auto sales, would be softer in the winter. Seasonal adjustments are far from perfect, which makes interpreting economic data in the winter months difficult.
Recent data for the month of March has been more encouraging. We have seen a pick-up in retail sales, notably in the auto sector. Also, employment data has been improving, albeit on a gradual basis, and new jobless claims are at multi-year lows.
Possibly the most relevant piece of data was the Leading Indicators report released on Monday, which showed a significant increase for the month of March. This would tend to imply that the economy should be stronger in the middle of this year compared to what we have experienced in recent months.
Another sign pointing to improvement in the economy is an increase in bank lending. This is especially important for smaller and medium sized businesses, who do not have access to capital markets. These companies tend to be the job creators, which should be a boost to the labor market.
Given the pause we saw in the national economy early this year, it appears that the weakness was weather related. This would imply that the odds of us falling into a new recession for the balance of this year are relatively low.
Over the course of a year there will be many events that will have some impact on the economy. Most will not be significant enough to alter things in a major way. As the world becomes more interconnected international developments take on added importance. Developments in Russia and Ukraine have the potential to create problems for the global economy, but for now economic projections have not been altered.
With the economy appearing to be on more solid footing, versus earlier in the year, is a positive for the stock market. This would tend to reduce the likelihood of a major correction occurring. However, with the market near its all time highs, we may not see too much in the way of upside.