Weather Does Not Cause Recessions

Posted in: Economics, General, Stock Market, Thought of the Week

This well-publicized “Polar Vortex” has delivered one of the coldest winters in our country’s history. Over the past several weeks, we have been caught off guard with a number of economic data points that were reported weaker than expected. Subsequently, many market bears point to the recent weakness as a sign that our economy is slowing and moving closer to a recession. However, our Investment Committee strongly believes that the weather is the culprit for short term weakness, and they expect to see a return to our slow and steady growth in the coming weeks. In order to understand why they believe this, let’s take a closer look at the economic activity in January.

What makes this winter so unique is that the extreme conditions are impacting regions of the United States that tend to spend the most money. For instance, New Yorkers are used to dealing with the cold every winter, however, they are not used to dealing with Alaska’s winter. Our Investment Committee believes that most people in these high spending areas are staying inside instead of shopping for discretionary goods. Our economy is feeling a temporary impact because these high spending areas represent a large percentage of overall spending. As we know, consumer spending represents about 70 percent of all economic growth in the U.S. economy.

Our Investment Committee anticipates that we will likely see more weak data over the coming months until this weather turns. Yet, there are a few reasons they do not believe this weather can cause a recession in the long-term:

  1. Weather will not prevent our country from becoming energy independent.
  2. Cold weather will not prevent manufacturing jobs from returning back to the U.S.
  3. Consumers will begin spending more money once the sunshine returns.

To sum it up, the recent weakness in our economy should reverse as the Polar Vortex returns to the North Pole. Our Investment Committee will continue to look for stocks that “go on sale” because the market bears are selling equities due to fear and panic caused by cold weather. Investors must remain focused on the long-term fundamentals of our economy.

Read this week’s Thought of the Week to learn more about how the weather affects our economy in the short-term and the long-term.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.