Old Man Winter Put a Chill on U.S. Labor Market at End of 2013

Old Man Winter emerged at the end of last year to put a chill on a U.S. labor market that was showing signs of warming up.

Economists say the coldest December since 2009 and above-normal snowfall forced some workers to remain home, restraining hiring. Yesterday’s Labor Department report showed employment rose by 74,000, the smallest gain since January 2011 and less than the most pessimistic projection in a Bloomberg survey.

The agency’s survey of households, used to calculate the nation’s jobless rate, showed 273,000 Americans didn’t report to work because of bad weather, the most for any December since 1977. Where economists differ is the extent to which inclement conditions inhibited payrolls, a figure drawn from a separate survey of businesses.

“Weather had an impact, there’s no question about it,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC, who estimates the gain would have been as much as 177,000 under more normal climate conditions. “If you look at things like construction, like leisure and hospitality, even retail may have been weaker than it otherwise would have been.”

Bad weather hurts the payroll count if employees received no compensation for the period that included the 12th of the month. That’s when the Labor Department surveys businesses. In the household survey, conducted a week earlier than usual last month, a person is counted as employed even if the worker was away from the job due to weather.

Counter Argument

That’s precisely the reason others contend the dip in temperatures had little influence.

“We don’t buy for a minute the weather explanation,” Derek Holt, an economist at Scotiabank in Toronto, said in a research note. “If you make it into work at any time over this reference period, even just for an hour, then you count on payrolls.”

Translating the weather’s effect on payrolls from responses collected from households is also difficult because the latter aren’t adjusted for seasonal variations.

Morgan Stanley economists estimated the cold weather reduced payrolls by about 50,000 to 75,000. Yesterday’s report showed construction employment dropped 16,000 last month and leisure and hospitality payrolls fell 9,000 -- both areas that are sensitive to changing weather patterns, according to Morgan Stanley.

Harm Bandholz, chief U.S. economist at UniCredit Group in New York, said weather was a temporary hit on payrolls of about 100,000 to 110,000, meaning the report isn’t “the beginning of a renewed downward trend.”

Mild November

The 241,000 increase in November probably reflected milder temperatures as the number of those away from work due to weather was the lowest for any November since 2001, Bandholz said.

“In many monthly numbers we’ve seen in October and November, the strength was likely a bit exaggerated, in part due to very mild weather,” he said. “The December numbers show some payback. I think we’ll see a stronger January, so the average will get back to 190,000 or so.”

The average number of workers not reporting to work due to weather in the previous five Decembers was 165,800. Had last month’s figure been more typical, the gain in payrolls would have been about 200,000, said Paul Edelstein, director of financial economics at IHS Global Insight Inc. in Lexington, Massachusetts.

“It is difficult to determine how much of this report is ‘signal’ and how much is ‘noise,’” Edelstein said in a note to clients.

Unemployment Drops

The climate’s impact on the unexpected decline in joblessness is less easy to ascertain. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, as more people left the labor force.

The weather “doesn’t fully explain the loss of 347,000 workers from the labor force,” said Edelstein.

Last month was the coldest December in four years and snowfall was 21 percent above normal, according to weather-data provider Planalytics Inc. The second week of December, which corresponded with the payroll survey period, was the chilliest for any comparable time in more than five decades, the firm said.

Some economists are also projecting payrolls will rebound this month for other weather-related reasons.

Ryan Wang, an economist at HSBC Securities USA Inc. in New York, said in a research note that weather conditions can “easily cause tens of thousands of intended hires to be delayed for a month, pushing the payroll gains into the following month.”

Wang estimates the “underlying trend” for payroll increases is about 180,000 a month. That’s in line with the 182,170 average last year and the previous year’s 182,750.

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