The Cost of Winter Storms: Should We Believe the Economists?

 

We hear it every winter, especially this year in the Pacific Northwest, winter storms cost the US economy billions of dollars.

This year, the extended winter freeze that has pounded entire regions of the US is projected to chill the overall economy.

AccuWeather estimates a total cost to the economy of up to $14 billion. And while much of that will be recouped, up to $5 billion could be lost permanently.

 

CUTS A WIDE SWATH THROUGH ECONOMY …

This hit, states AccuWeather, is projected to cut a wide swath in the economy including business, schools, auto sales, significant insurance claims, flight and other travel cancellations, increased consumer costs for heating oil and natural gas, decreased demand for gasoline, and lost wages for non-salaried employees.

Several cities and states have to factor in extensive foul-weather road preparation and cleanup costs.   So, when so much business can be done over the phone and online, these estimates leave some scratching their heads.  

Does the total cost of snowstorms really add up to a permanent loss to the economy of as much as $5 billion?

 

THE SHORT ANSWER IS …

The short answer: Yes, it can.

But, it’s not that simple.  First, the media knows that by pointing out that something costs “billions of dollars” it will get people’s attention.  If a reader could get a hold of part of that money, he and his family could do very well.  After all, it’s a lot of money.

But given the $19 trillion US economy, it’s chump change.   It’s .026% of the country’s annual output.  

On a per capita basis, it’s $15.22.   On a more conceptual level it would be honest to write that all of the winter storms in the country would cost you $15.22. 

And for the average person, it would be much less, since income is unevenly distributed.

These numbers at least communicate the magnitude of the effect on the economy in a way the average person could understand.

 

WHERE DOES THIS MONEY COME FROM?

That said, where do these hundreds of millions of lost dollars actually come from?  

According to Doug Handler, an economist at IHS Global Economics, one of the biggest hits the economy takes is in the form of lost wages for hourly employees.

While salaried office workers get paid even if they can’t make it to work and can likely even work from home, hourly employees aren’t so fortunate.

And it’s not as if all these workers can simply make up the money on another day.

The economy also takes a hit from lost sales at places like restaurants or retailers.  Some of that consumer spending gets made up at a later date.

 

MORE THAN DELAYED PURCHASES …

If you are, for instance, planning to buy a car, a snowstorm will merely delay your purchase. But if you had planned to eat out the night of the storm, it’s not certain that you will still buy that meal another time.

Another big contributor to lost economic activity is cancelled plane flights. It’s costly to cancel and reschedule flights, and in many cases, some trips will not be rescheduled at all.

But even in the case of sustained periods of very bad weather, like what we saw across the country this winter, estimating the economic effects involves a lot of guesswork.

Economists know that output will fall in the first quarter of this year in a way that isn’t consistent with broader economic conditions, and they also know that snowfall levels were much higher, and temperatures were much lower than usual in some of the most productive areas of the country.

 

MORE ART THAN SCIENCE …

Economists also make use of qualitative and quantitative survey data from the Federal Reserve and private groups to connect the dots.

But in the end, it’s impossible to know for sure how big a role weather plays in the economy.

As Handler says, “it’s more an art than a science”.

For those of us in the Northwest, let’s just dig our way out and realize that climate change is only beginning to cost us real money.

 

Revitalization Partners is a Northwest business advisory and restructuring management firm with a demonstrated track record of achieving the best possible outcomes for our clients. And now, we’ve written a book to help our readers understand the issues facing their businesses. You can find this compilation of our business thoughts at: https://revitalizationpartners.com/we-could-write-a-book/ or on Amazon.

We specialize in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations.

Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.