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Harsh Winter Weather Yet to Take Economic Toll

Worst of this year’s storms have been concentrated in New England

By: Kathleen Madigan, Wall Street Journal

A weekend storm that brought snow and ice from the nation’s midsection to the East Coast is the latest in a string of harsh weather events this year. But economists say the impact on the economy so far doesn’t appear to be as bad as a year ago, when an extended cold snap slowed business activity in much of the country.

The outlook could change, however, if the frigid temperatures and hefty snowfalls continue into March.

Although many states in the eastern half of the U.S. have faced unusually harsh storms and low temperatures, the worst of this year’s storms have been concentrated in New England, said Evan Gold, Senior Vice President of Client Services at weather advisory firm Planalytics. Last year was worse, he said, “when there were more weather events across more population areas.”

Much of the western U.S. has had unseasonable warm temperatures this winter.

Recent data on housing starts and builder confidence suggest many builders in winter-prone areas are taking a breather, which will slow first-quarter growth on the margin. After the Commerce Department reported last week that housing starts fell 2% in January, economists at Barclays trimmed their growth estimate for first-quarter gross domestic product to an annual rate of 2.1% from the previous 2.2%. That projected rate is below the 2.6% increase posted in the fourth quarter of 2014.

Closed-down construction sites hurt other sectors. Joseph Lavato said new construction “is nonexistent” in Chicopee, Mass., hard-hit by winter snow, which means no big orders for his plumbing-supply company. Although he is selling to plumbers who are repairing existing pipes, he said that “for new construction, we sell the plumbing for the whole house instead of a few pieces to the fix-it guys.”

The good news, say economists, is that construction activity is being delayed, not canceled. “There’s time to make up the loss in housing,” said Douglas Handler, chief U.S. economist at IHS Global Insight. That is what happened in early 2014 when construction plunged in the winter and later rebounded.

While builders’ spring activity will add to economic growth in the second quarter, a segment of discretionary consumer spending may be lost forever. Small businesses, restaurants and bars lose out when consumers stay home. “Suppose I buy a cup of coffee from Starbucks every day on my way to work,” said Mr. Gold of Planalytics. “If I’m snowed in one day, am I going to buy two cups of coffee from Starbucks the next day? I don’t think so.”

Weather’s other large economic impact is on the supply chain, Mr. Handler said. “Last winter, companies couldn’t get supplies,” he said. “Manufacturers couldn’t ship out finished goods. Exports suffered.” Businesses couldn’t manage their inventories as they wanted.

The extreme slowdown in inventory accumulation accounted for more than half of the 2.1% drop in all economic activity in the first quarter of 2014. Much like the housing rebound, a return to more normal inventory building contributed significantly to economic growth in last year’s second quarter.

Mr. Handler said that despite frigid temperatures and snowstorms, merchandise is still moving across the U.S., and the bigger risk to distribution channels was the labor slowdown at West Coast ports. That threat may soon ease. The tentative agreement reached between labor unions and port owners on Friday should allow port activity to return to normal, though it may take many weeks to off load all the waiting ships.

Write to Kathleen Madigan at kathleen.madigan@wsj.com

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