Month: June 2015

Weathering Economic Changes – The Safe Money People

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sunny-weather

Flowers aren’t the only things that flourish in the spring. The warmer weather can help stimulate consumer spending — which helps companies grow as well.

As it turns out, weather is frequently tied directly to the economic stability of companies. Coca-Cola CFO Gary Fayard recently said weather contributed to the company’s disappointing second quarter.

“I hate to use the weather, but a lot of it was the weather,” Fayard said. “We are an industry that is susceptible to weather.”

In fact, a lot of experts blamed the harsh winter weather of first quarter 2015 for poor results. Many companies had to shut down because their employees were snowed in and flights were cancelled. The travel industry was impacted at every level, as were run-of-the-mill mom-and-pop shops that missed their regular customers. Let’s face it, when it’s cold outside, nobody wants to go shopping. Fewer still go looking for jobs, so the unemployment rate stagnated. In April, a wealth manager at Guggenheim Partners observed that the U.S. could potentially post zero or even negative economic growth in the first quarter due to the punishing weather.

However, when winter closes the door, somewhere a window opens — and that’s where spring slips in. Since 1975, harsh winters that yielded slow growth have generally been followed by a springy economic step in the second quarter. Many times, this growth spurt exceeds the previous fourth-quarter growth rate, so company losses frequently have the opportunity to gain ground and then some, despite the depressive chill.

This year, as spring began, we enjoyed a sunnier economic forecast. Retail sales, durable goods orders and manufacturing activity rebounded nicely. Typically in warmer weather, retailers, recreation and food service sectors tend to perform well. In addition, there are fewer delays in transportation deliveries and warehousing due to weather-related conditions.

In short, when the sun shines, people start spending money again. As an economic panacea, it soon follows that when confidence and consumer spending increases, small business owners are able to expand and offer more jobs. In turn, businesses may be compelled to increase wages to retain valuable employees.

Be aware, however that one negative consideration on the horizon is that the Federal Reserve is expected to increase interest rates this fall. This would make home buying less affordable — particularly for first-time buyers.

Laura Hershey. Weather and Economics. March 23, 2015. “Investors and the Weather.”http://www.weatherandeconomics.com/2015/03/23/investors-and-the-weather/. Accessed May 5, 2015.

Scott Minerd. Guggenheim Partners. April 10, 2015. “It’s the Weather.”http://guggenheimpartners.com/perspectives/macroview/its-the-weather. Accessed May 5, 2015.

Ibid.

Mark Leberfinger. Accuweather.com. May 5, 2015. “US Economy Suffers in First Quarter of 2015 as Brutal Winter Curbs Sales.” http://www.accuweather.com/en/weather-news/harsh-winter-us-economy-sales-slow-growth-spring-summer-hope/46407985. Accessed May 5, 2015.

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