- Housing market and retailers likely to benefit the most
- Seasonal-adjustment issues may make data look even better
The winter doldrums that have beleaguered the U.S. economy over the past two years may come to an end in 2016.
The weather phenomenon known as El Niño could give the world’s largest economy a leg up in coming months as a milder winter supports growth in housing and consumer spending, according to economists at JPMorgan Chase & Co., Bank of America Corp. and Bloomberg Intelligence. The warmth released by the shift in winds could add 0.1 percent to inflation-adjusted gross domestic product in the first quarter, and 0.55 percent for the year, according to a paper issued by the International Monetary Fund earlier this year.
That would be in sharp contrast with the past two winters, when abnormally cold weather stunted first-quarter growth, with the economy even contracting at the start of 2014.
The effects from El Niño could allow for “generally more churn in the economy,” Michelle Meyer, deputy head of U.S. economics at Bank of America in New York, said in an interview.
“When the weather is warmer and you don’t have as much snowfall in the winter, it allows for greater construction,” she said. “And in an environment where the temperature is warmer and people are willing to be out shopping, consumer spending and restaurant sales could look stronger.”
El Niños occur when a weakening in the trade winds that usually push warm water in the equatorial Pacific to the west allows some of that water to flow east. This year’s El Niño -- declared in March -- is one of the three strongest since 1950, and many forecasters believe it will result in a mild winter for the northern and eastern U.S. in particular.
“Should the coming winter resemble past El Niño events, the lift to growth would likely be manifest in construction and consumer spending,” Michael Feroli, chief U.S. economist at JPMorgan in New York, wrote in a note to clients this month. His research showed the phenomenon would boost GDP by a total of 0.4 percent, with the lift to growth rates largely occurring in the first four quarters.
Slightly stronger underlying growth in the first quarter compared to the previous two years could mean that first-quarter GDP looks even stronger, according to Meyer. That’s because the seasonal adjustment used to compensate for the normal slowdown in activity at the start of the year may be thrown off due to the extreme weakness in 2014 and 2015.
That would make it harder for market participants to disentangle how much of the better data is due to improved activity and how much is chalked up to mis-measurement caused by the seasonal-adjustment process, Meyer said. The models used to adjust for seasonal swings give greater weight to recent years, she said.
“The seasonal factors could be looking for a cold winter akin to what we had the prior two years and actually risk over-adjusting the data higher,” Meyer said.
There’s one more thing working in the first-quarter’s favor. The Commerce Department has taken steps to fix a statistical quirk that has resulted in persistent weakness in GDP data at the start of the year.
Stronger growth early in the year would come as Federal Reserve policy makers try to determine how quickly to raise the benchmark interest rate. Officials next meet on Dec. 15-16, and are widely projected to vote to increase the rate for the first time since 2006.