Weather: The Economy’s Worst Enemy

The UK has recently been hit by record low temperatures. Most of its large airports are closed. The wintry weather has also moved to other parts of northern Europe. Some people will not get home for the holidays.

Many meteorologists predict this will be the coldest winter in history across the northern states in America. Others think that the chill will extend to the southern states, too. There have already been deep freezes, at least by local standards, in Florida and parts of the citrus crops there have been damaged.

The start of winter in Europe could be the beginning of a period of bad weather and snow that lasts until March. Brief periods of the trouble may not hurt the fragile economies in the US and Europe.  However, extended periods of deep freezes and snow may.

It has been assumed by many economists that US and EU GDP will recover to 3% or better next year, despite high unemployment. The improvement will be driven by an up tick in business spending and consumer confidence which is marginally better than it was in the depth of the recession.

Recently, the most often mentioned reason that the recovery might halt is high fuel prices. Gasoline in the US costs $3 on average. The prices of petrochemicals, which will be passed along to many industries, and home heating oil are up. Whatever discretionary spending businesses and consumers might make could be undermined by the cost of fuel, the theory goes.

Retail activity and travel have been badly hurt by weather before, and the weather this year may magnify what have been difficult but short-lived problems in the past. It is hard to get people out in 10 degree weather when there is a foot of snow on the ground. Some people may not even make it to work.

Douglas A. McIntyre