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Winter Storms Threaten to Chill U.S. Economy

By Associated Press - Feb 13, 2014 at 4:27PM

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Home heating bills have escalated for many such families, many of whom have no choice but to reduce spending elsewhere.

The winter storms barreling across much of the United States are undercutting the nation's economy just when signs of stronger growth had begun to emerge.

Retail sales tumbled in January after a smaller decline in December, the government said Thursday. The news came as another snowstorm blanketed a third of the country, likely ensuring that February will mark a third straight month of weak job growth.

Some economists responded by lowering their overall growth estimates for the January-March quarter. Freezing weather usually slows the economy during winter before growth picks up once temperatures rise again. But the onslaught of snow days this winter could prolong the slowdown.

For one thing, harsh conditions tend to rob many hourly workers of income. The avalanche of nasty weather means that waiters, limousine drivers and store employees might never recoup their lost wages later in the year, said Diane Swonk, chief economist at Mesirow Financial.

Snow days that were declared across the Eastern Seaboard forced many parents to stay home from work. Atlanta closed its schools for a third straight day, Philadelphia for the fifth time this winter.

At the same time, home heating bills have escalated for many such families, many of whom have no choice but to reduce spending elsewhere.

"You disrupted incomes for some people permanently," Swonk said.

She estimates that economic growth during the first three months of this year will be "well below" a 2% annual rate -- a steep drop from the 3.2% rate in the final quarter of 2013.

Several major retailers and restaurant chains have blamed winter storms for chilling sales. McDonald's, the world's biggest burger chain, said bad weather hurt its U.S. sales last month. Whole Foods said weather was one reason its fiscal first-quarter profit and revenue fell below expectations. And Wal-Mart, the world's largest retailer, in late January blamed severe weather for a fourth-quarter drop in revenue.

Based on data from 50,000 retailers, sales plunged 9.6% during the height of the polar vortex that gripped much of the nation in January compared with the same period last year, the firm Applied Predictive Technologies said.

For all of January, retail sales fell a seasonally adjusted 0.4%, the Commerce Department said Thursday. That marked the second straight decline after a 0.1% drop in December.

The retail sales report is the first look at last month's consumer spending, which accounts for about 70% of all economic activity. Many economists had predicted that stronger consumer spending this year would cause growth to accelerate.

But auto sales fell 2.1% in January. The industry reported a 3% drop compared with a year ago, the first year-over-year drop since August of 2010.

February isn't looking much better.

Some dealers lost power or had no customers for two or three days this month. The salt supplier for the auto mall AutoServ in Tilton, N.H., said this week's shipment would be the last because of a shortage, said AutoServ CEO Dennis Gaudet.

Last month, consumers spent less on clothing and furniture. Department store sales extended a decline after a weak holiday shopping season. Even online shopping -- the fastest source of retail spending growth year-over-year -- fell 0.6% last month.

When Americans did buy more, much of the increase was at gas stations, and that was because of rising prices. Their purchases of building materials and groceries also rose.

"These gains may also have been driven by weather," said Peter D'Antonio, head of U.S. economic forecasting at Citigroup. "People evidently bought shovels, snow blowers and salt. And they stocked up on food."

Evidence of a slowdown is a deflating sign after the economy had rounded into January fanned by momentum gathered in the second half of 2013. Economic growth achieved a solid annual rate of 3.2% in the October-December quarter after an even better 4.1% rate the previous quarter.

The forecasting firm Macroeconomic Advisers responded Thursday to the drop in retail sales by reducing its estimate of growth this quarter to a 1.7% annual rate from an earlier forecast of 1.9% Moody's Analytics cut its forecast to a 1.9% annual rate from 2.2%.

Ryan Sweet, an economist at Moody's Analytics, said weather likely put a "noticeable dent" into growth. He estimated that it shaved up to a full percentage point from first-quarter expansion. He added, though, that the expiration of extended unemployment benefits at the end of 2013 and reduced food stamp benefits also hampered retail sales.

Several other economic reports suggest that growth slowed. Factories received fewer orders in December. Signed contacts to buy homes have plummeted to their lowest level in more than two years.

And the past two monthly job reports were sluggish. Only 113,000 workers were added in January. That's slightly better than the 75,000 jobs for December. But average job creation for the past two months combined has been about half the pace of average monthly job gains over the past two years.

Hiring could remain lackluster in February, too. Thursday's snowstorm overlapped with a government survey that's being used to calculate this month's jobs report.

"It's quite possible that we have to brace ourselves for another soft jobs report," said Jennifer Lee, senior economist at BMO Capital Markets. "That's due to the snow."

There are also signs that the momentum at the end of last year was weaker than initially thought.

Retail sales for December were revised downward in Thursday's report. What was initially a 0.2% gain was revised to a 0.1% loss. Some economists suggested that growth during the October-December quarter would be slightly downgraded from its initial 3.2% annualized increase.

As a result, the pace of retail sales growth over the past 12 months has slowed. Purchases have risen 2.6% compared with January 2013.

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. The Motley Fool recommends McDonald's and Whole Foods Market. The Motley Fool owns shares of Citigroup, McDonald's, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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