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Stocks and the Snowstorm

The snow that buried much of the eastern United States in the past week has stretched government budgets and slowed home-buying.

The wave of blizzards could also hurt financial markets in the coming weeks. The reason: Weaker-than-expected economic data.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank (DB) writes Feb. 11:

In the past, major winter weather events have had a measurable impact on a range of economic indicators including employment, industrial production, retail activity and real estate/construction.

In January, non-farm payrolls declined 20,000. In February, many economists were hoping for a payroll increase. That could be a crucial sign that the economic recovery is on track – if, that is, job market improvements aren’t stymied by snow.

The monthly employment report includes a measure of workers kept from their jobs by bad weather. During big snow storms in February 2007, for example, 505,000 workers were impacted by the weather, and in February 1994 it was 536,000. LaVorgna thinks the effects of this month’s snowstorms could match the “Blizzard of 1996,” “surpassing even Hurricane Katrina”: In January 1996, 1.85 million workers missed work because of wintry weather.

The final damage of this month’s snowfall won’t be known for a while. Yet another snowstorm is moving into Texas and other southern states.

The good news, according to LaVorgna, is that February’s slowdown in economic activity is likely to be followed by a “catch-up” in March. So while he is adjusting February economic predictions, he doesn’t expect a major impact on the quarter overall.

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