Irwin Kellner Get email alerts

The winter of our content?

Published: Apr 3, 2012 12:01 a.m. ET


Commentary: How much did weather skew U.S. data?


Chief economist

PORT WASHINGTON, N.Y. (MarketWatch) — Did the unusually mild winter make the U.S. economy look better than it really was?

Normally, things slow down between November and February. Production, transportation, shipping and construction, to name four categories, tend to shift to a lower gear as the winter solstice crosses the Northern Hemisphere.

In part, this is due to the holidays. Besides Thanksgiving, we celebrate Christmas, Hanukkah and Kwanza. There is lots of joy and camaraderie and less work.

Kellner's Forecasts
date report forecast previous
Aug. 13 Retail sales 0.3% 0.2%
Aug. 13 Retail sales ex-autos 0.4% 0.4%
Aug. 15 Producer price index 0.3% 0.4%
Aug. 15 Empire state index 26.0 25.6
Aug. 15 Industrial production 0.3% 0.2%
Aug. 15 Consumer sentiment 82.0 81.8

However, most of the reason why things slow is the weather. Cold, ice and snow take their toll on activities ranging from travel to construction.

That said, in order to evaluate data and trends on a month-to-month and a quarter-to-quarter basis at a time when conditions change, economists apply seasonal adjustments to the raw data. This provides a way to analyze statistics in a more timely fashion than just comparing current data with the same period a year ago.

For the winter months, the seasonal adjustments will inflate most data to make up for the fact that they are artificially depressed because of the time of year. In the case of retail sales, however, which jump around year-end because of the need to buy winter clothes and gifts for the holidays, the data are reduced.

Seasonal-adjustment factors are not engraved in stone. They are altered gradually to take into account long-term changes in trends. If they were changed only once every 10 years, for example, economists would not be able to account for normal seasonal variations in sales of such new products as smartphones and tablet computers, not to mention new methods of ordering and payment using the Internet.

Every so often, the weather is much different than usual. When this happens, the data will be distorted. A mild winter, such as most of the country just experienced, will allow commerce and industry to continue unabated, instead of slowing down as would be expected.

That being the case, when the data are adjusted for seasonal variation, they are likely to be inflated. The real gross domestic product is a case in point.

Growth in the fourth quarter of 2011 is pegged at a seasonally adjusted annual rate of 3%. This is almost twice the pace of the previous five quarters; it was the fastest rate of growth since the second quarter of 2010.

This kind of jump prompted forecasters to re-evaluate their assessments of the economic outlook for 2012. Most raised their estimates for growth for this year and, not surprisingly, cut their projections for the unemployment rate.

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Before you could say “election year,” this change in the outlook became an issue in the presidential campaign. The Democrats naturally seized on this as vindication of the president’s economic policies, while the Republicans scurried to find another issue to attack him on.

All eyes will turn to the March employment data, to be released this Friday, to see if this improvement was real or merely a statistical illusion. The weather is usually more benign at this time of year, so any distortions from seasonal adjustments tend to be minimal.

Nonfarm payrolls grew an average of 245,000 between December and February after expanding by an average of only 157,000 in the three prior months. That’s quite a jump.

If March’s employment stats are as good or better than the previous three months, it could be sign that the winter’s improvement was real. But if March disappoints, it would mean that the strength over the winter was nothing but a chimera.

Then watch how quickly the pols change their tune.


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