The Farmer's Almanac And The Fed
Traditionally, anyone trying to predict the outlook for the U.S. economy studies a lot of data from the Labor Dept., the Commerce Dept., and the Federal Reserve. But with growth during the winter months consistently coming in above forecasts for the past several years, economists--including Fed Chairman Alan Greenspan--may need to start watching the Weather Channel, too.
This year's surprisingly moderate winter--the warmest since record-keeping began in 1895--had a pervasive effect on the economy, boosting housing starts, consumer spending, public construction, and business investment above their normal levels. In total, the warm weather added more than half a percentage point to first-quarter gross domestic product and four-tenths of a percentage point to fourth-quarter GDP, according to Mark M. Zandi, chief economist at Regional Financial Associates Inc., an economic-consulting firm.
LONG VIEW. More important, this may not be a one-time event. Greenspan, who has a good record of catching economic trends early, wonders whether global warming will lead to a long-term change in temperature patterns and milder-than-expected winters. A sustained rise would change seasonal patterns of spending and investment in unpredictable ways, as businesses, governments, and consumers shift some of their outlays into winter months. And it would make it harder for policymakers, such as Greenspan, to assess the true state of the economy, since the data could be subject to big revisions when the seasonal adjustment factors are recalculated.
True, much of the economy is not affected by weather. But there is little doubt that the warm temperatures pushed the housing sector up 50% above normal, estimates Zandi. The winter's favorable weather also helped public construction, which already was getting a big boost from last year's $216 billion federal highway bill. As a result, state and local spending, adjusted for inflation, rose at a 7.3% rate in the first quarter, the biggest increase since 1986.
Should economists adjust their models to account for more warm winters in the future? That depends on whether predictions that the earth is getting warmer prove to be accurate. David R. Easterling, principal scientist at the National Climatic Data Center in Asheville, N.C., says the average global temperature in 2050 is predicted to be 2F to 4F higher than now.
And there's a good chance, according to Richard J. Tinker, meteorologist at the U.S. Climate Prediction Center, that next winter will continue the trend of warmer-than-normal temperatures, at least in the southern plains and the eastern half of the country.
Between new technologies and globalization, policymakers already are struggling to develop new rules to predict the course of the economy. Now they may have to predict the weather, too. And let's face it, neither economists nor meteorologists have a great record when it comes to forecasting.
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