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It Begins: Goldman Cuts Q1 GDP Due To Snow

... we think that negative snowstorm effects could potentially subtract as much as half a percentage point from Q1 growth compared with a neutral baseline, although there is still plenty of time for activity to bounce back within the quarter. In light of our analysis, we reduced our Q1 GDP tracking estimate by two-tenths to +2.8%.

      - Goldman Sachs, February 20, 2015

 

Back on Monday, we warned that "The Last Time This Happened, US GDP Crashed By 5%", and by this we of course mean the Polar Vortex 2.0 that has gripped the US in a spell of Russian revenge by way of the "Siberian Express" which has blanketed the US in record cold weather.

 

 

As a reminder, it was precisely a year ago that economists, clearly unable to realize during the fact that heavy snowfall (in the winter) is disastrous to seasonally-adjusted GDP, decided to blame the harsh weather after the reported GDP fact. After what fact? After seeing Q1 2014 GDP rising as much as 2.5% just shortly before the BEA announced that Q1 GDP was in fact... -2.9%!

 

This led to such hilarious episodes of weatheconomists goalseeking their models to "reality" as the following:

 

In any event, our conclusion on Monday was the following:

So clearly the question is now that Q1 GDP estimates are once again facing the same trajectory as precisely a year ago (and that doesn't even include the real threat of the West Coast port strike spilling over and truly slamming the US economy), how long until the current consensus economic forecast...

 

 

... is slashed by the same 5% that the Polar Vortex of 2014 magically crushed seasonally-adjusted Q1 2014 GDP growth by?

 

Or perhaps this time will be different, and the laughable cadre of propaganda sycophants known as tenured and/or Wall Street economists finally admits that cold weather in the winter had nothing to do with the economic plunge a year ago, and everything to do with the fact that when it comes to integrity and accuracy of economic data and estimations, the US now ranks pari passu with the Chinese department of truth?

Turns out it wasn't different: it was just that Wall Street's massively overpaid economists needed a few weeks of observing record cold weather and massive snow fall to put two and two together and realize that they have seen al of this a year ago.

As a result, the time to start slashing GDP and blaming it on the weather has arrived.

And here comes the first one, courtesy of Goldman, which just cut its Q1 GDP estimate to 2.8%, saying "negative snowstorm effects could potentially subtract as much as half a percentage point from Q1 growth" - because remember: nothing is as unpredictable, and nothing is as unseasonally unadjustable as snow in the winter.

Here is Goldman with Can the Economy Climb Out of the Q1 Snowbank.... because the so-called 5% GDP growth in Q3?

  • Last winter’s colder- and snowier-than-normal weather had a significant negative effect on macroeconomic data. In today’s Daily, we review the likely impact of the weather so far this winter. On balance, we expect the extent of weather distortions to be quite a bit smaller than last year, although above-average snowfall will probably still result in a drag.
  • Temperatures this winter have been more seasonally normal, as measured by population-weighted heating degree days. Somewhat colder-than-normal temperatures in the densely populated Northeast were offset by significantly warmer-than-normal temperatures in much of the West. Since November, fluctuating temperatures have contributed to swings in seasonally-adjusted utility output, with little net impact.
  • Snowfall has been higher than normal—in particular in New England—although national snowfall has not yet been as extreme as it was last year. This year’s major storm of the winter, which occurred in late January, managed to fall outside of the January and February reference weeks for the payroll report. However, the storm may have had a negative impact on January retail sales. In addition, flight cancellations are elevated, which may show up in the air travel spending numbers.
  • On balance, we think that negative snowstorm effects could potentially subtract as much as half a percentage point from Q1 growth compared with a neutral baseline, although there is still plenty of time for activity to bounce back within the quarter. In light of our analysis, we reduced our Q1 GDP tracking estimate by two-tenths to +2.8%.

Last winter’s colder- and snowier-than-normal weather had a significant negative effect on macroeconomic data. Consumer spending grew slowly and construction activity fell, contributing—along with other special factors—to a shockingly-bad 2.1% contraction in GDP in the first quarter of the year. With this experience fresh in memory, cold temperatures in the Eastern US and recent winter storms including "Juno" and "Octavia" have raised questions of whether we are in for a repeat of 2014. In today’s Daily, we review the likely impact of the weather so far this winter.

 

Starting with the temperature, our preferred quantitative measure is the National Oceanic and Atmospheric Administration (NOAA)'s population-weighted heating degree day (HDD) series. HDDs measure the number of degrees by which a day's average temperature falls below 65 degrees F, with more positive numbers indicating colder temperatures. Exhibit 1 shows that, in contrast to last year's "polar vortex," cumulative HDDs this year have been roughly in line with historical norms.

 

 

This may be surprising to readers in the Eastern US who have recently been experiencing colder-than-average temperatures. Exhibit 2 shows the cumulative deviation in heating degree days from historical "normals," with red coloring indicating hotter-than-normal temperatures and blue coloring indicating colder-than-normal temperatures. While much of the Eastern part of the country has been colder-than-normal this year, essentially the entire Western half of the country—including California, the most populous state—has been warmer than normal. That said, the relationship between temperature and economic activity is complex, and warmer-than-average winter temperatures in areas of the country that are typically warmer probably have a different effect than warmer-than-average winter temperatures would have in areas that are typically colder.

 

 

Snowfall has probably been a more significant factor. This is particularly the case in New England, where Boston is on track for record-breaking snowfall this winter. Exhibit 3 shows one measure of the cumulative impact of snowfall for the US as a whole—a running total of the number of people experiencing snowstorms with at least 6" of accumulation. Per the chart, snowfall this year has exceeded seasonal norms, but has not yet matched last winter's extremes. However, this measure does not include the impact of winter storm Octavia earlier this week—which resulted in the closure of federal government offices in Washington, DC—as the figures have not yet been tabulated by NOAA.

 

...

Overall, it appears likely that the weather will again be a drag on Q1 GDP growth, although by significantly less than last year. A very simple forecasting model of real GDP growth which takes into account momentum and reversion effects, augmented with weather variables, would suggest that the drag could potentially be as much as half a percentage point (compared with about a full percentage point in Q1 of 2014). However, we do not yet have a significant amount of construction data in hand for the quarter, typically the most weather-sensitive sector of the economy. January housing starts held up relatively well, down only 2% after rising 7% in December. (Compare this with the 18% cumulative drop in housing starts during December 2013 and January 2014.) In addition, there is still plenty of time for activity to bounce-back within the quarter, especially if the snow lets up and unseasonably cold temperatures in the East give way to a spring thaw. Nonetheless, in light of our analysis we reduced our Q1 GDP tracking estimate by two-tenths to +2.8%.

Because what above-trend growing economy can possibly handle a few extra feet of snow?  What really!?

Laughter aside, expect another round of GDP cuts by the, how did we put it, "laughable cadre of propaganda sycophants known as tenured and/or Wall Street economists" due to not only snow in the winter, but also the West Coast port strike as predicted here 2 weeks ago, to take place in 2-4 weeks, once the reality of the latest sharp US slowdown filters through their goalseek-o-trons.

In the end, we wouldn't be surprised if the final Q1 GDP print at 0% or negative, now that Obamacare can no longer "boost" GDP, now that household savings have been revised as low as they can go (pushing GDP higher in the process as explained previously), and now that the blistering issuance of subprime loans to buy rapidly amortizing cars by deadbeats is fading fast. All that will be blamed on the weather .