2012 US GDP Growth: Thank Warm Weather!
There are many shortcomings of any measure designed to calculate economic growth. Most people would find that a dartboard makes for more accurate predictions than economists.
In the short-term, measuring and applying GDP as an economic indicator can be quite difficult. A recent article by the Wall Street Journal highlights comments economic thinkers and their views on recent GDP growth. (In summary – they’re not so bullish.)
The Comment that Stuck
One comment really reached out and grabbed me from my computer screen. Jay Feldman, who works at Credit Suisse as an analyst, I suppose, noted that the lackluster GDP growth in the fourth quarter of 2011 might have more to do with heating bills than consumer confidence. Feldman pointed to a 3.1% decline in the housing and utilities subcategory of services spending.
Now, how much we turn up or down the heat has nothing to do with economic strength. Most any economist would tell you that utilities are very much products which should enjoy inelastic demand curves. That is to say that a negative change in energy consumption has more to do with demand for energy than it reflects on economic weakness. Is it consumers fault that December 2010 was cooler than normal and 2011 much warmer than normal?
No, of course not.
And herein lies the problem with using long-run data to make short-term inferences about the economy – even events like the weather have a very large impact on any economic measurement.
Accumulated Benefits
Feldman goes on to say that the savings accumulated from warmer winter weather typically shows itself later. Consider what a consumer might do with his or her extra savings:
- Invest – Okay, maybe not. This is Joe M. Average consumer we’re talking about here.
- Pay down consumer debts – Most households are still feeling the pain of a sharp economic contraction in the US. Any savings from a lower utility bill can be easily moved to pay down debts and boost immediate liquidity.
- Consume elsewhere – Most probable of all my options, the average consumer is likely dedicating their savings to other consumption elsewhere in the economy.
Will the utilities sector fall apart because of a warmer than average December? I wouldn’t be one to bet on that. But what we can say is that the consumer certainly benefits from lower utility bills. Other service providers will likely benefit as the money filters back into other parts of the economy as well.
So, while most of us will never really see it, warmer weather did provide for a bit of economic stimulus in its natural form. We consumed less energy, and therefore enjoyed much lower utility bills. Now we can save, invest, and consume elsewhere. But for now, let’s try not to focus on the economic consequences of moderate savings. Again – cold weather can’t come every year at the same time and on the same date.
Photo by: Bogdan Suditu
Tags:2012 US GDP , 2012 US GDP Growth , economic indicators , GDP
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