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Wicked winter adds to economy’s woes

The three major snowstorms that have slammed the Northeast this winter have been more than just huge hassles — they may be creating yet another headwind for a wobbly economy.
Image: Northeast Snow Storm Slams New York City
The latest storm is likely to result in greatly diminished foot traffic to retail stores.Chris Hondros / Getty Images

The three major snowstorms that have slammed the Northeast so far this winter have been more than just commuting and safety hassles — they may be creating yet another headwind for an already-wobbly economy.

While government data released Friday confirmed that the economy grew at a rapid pace in the fourth quarter of 2009, Old Man Winter is already blowing through results for the start of 2010.

“If we had a better economy, this would be nothing more than a blip on the radar screen,” said Diane Swonk, chief economist at Mesirow Financial. “This economy is on such thin ice that the weather actually matters.”

The economy surged at a 5.9 percent pace in the final quarter of last year, even better than the original 5.7 percent estimate, the government reported Friday.

The bump came from stronger spending by businesses and foreigners, but consumers are apparently losing steam. They increased spending by just 1.7 percent, weaker than first thought and down from a 2.8 percent growth rate in the third quarter.

With economic growth already on a slower-growth path, this winter’s worse-than-normal weather could make things worse. For starters, as “snow days” pile up, worker productivity takes a hit. Washington was shut down for days this month by historic snowfalls that left the region blanketed under record accumulations.

The latest storm dropped more than 20 inches of snow on New York City, Philadelphia and other Northeastern cities, closing schools and offices and clobbering foot traffic to stores that remained open.

Thousands of flights were canceled and heavy delays were reported for flights that made it through the storm. Winds gusted up to 50 mph in Philadelphia, which declared a snow emergency, its fourth of the winter. Amtrak canceled regional trains in upstate New York, and commuter bus service was suspended in northern New Jersey.

Heavy snow didn’t slow the pace of new applications for unemployment benefits, which surged unexpectedly last week, according to government data released Thursday. Even as two blizzards slammed the Mid-Atlantic region last week, dropping record snow and bringing the region to a standstill, claims jumped by 31,000 to a seasonally adjusted 473,000 in the week ended Feb. 13.

A Labor Department official said at least 95 percent of initial claims are now filed on line or by telephone.

One of the biggest impacts could show up in the closely watched monthly report on employment due March 5. That’s because the government’s February employment survey was conducted in the middle of one of the biggest storms of the winter. The last time that happened, in January 1996, the data for February showed a loss of 201,000 jobs after average gains of 143,000 in the previous six months, according to a recent research note from Barclays Capital.

“The 1996 example suggests that there could be severe effects on payroll growth in February from the snowstorms,” said Barclays.

Because so many people were unable to get to work in January 1996, the official size of the labor force also shrank, which left the unemployment rate unchanged. By March, however, the jobs data showed a gain of 705,000 jobs, suggesting that the weather-related impact was temporary.

That 1996 storm introduced noise in other economic data, Barclays noted, including reports on manufacturing production, which posted the sharpest decline in five years, and the Conference Board’s index on consumer confidence, which dropped nearly 11 points. Both rebounded sharply the following month.

With the current economy in much worse shape, weather-related blips in the data will make it even harder for forecasters to get an accurate read on whether the economy is still in gear or slipping back into neutral.

The bad weather also may be hurting the housing market, which is showing resumed signs of weakness, based on the latest data released this week. New homes sales fell last month to their lowest levels since the government began keeping records in 1963. Existing-home sales showed a bigger-than-expected drop.

Tighter credit standards, gloomy consumer sentiment and fears that home prices haven’t stopping falling have hurt housing markets — even those that didn’t see a flake of snow all winter.

But the serial snowstorms haven’t helped according to Milton Ezrati, senior economist at Lord, Abbett.

“The housing market, particularly this time of year, is very sensitive to seasonal (adjustments),” he said. “If not the whole decline, some of it is due to weather. It's overstating the weakness and understating the strength of that market.”

Record snowfalls are pushing some strained state and local government budgets to the breaking point. In Washington, back-to-back snowstorms this month have cost the city’s Metro transit agency an estimated $18 million in decreased ridership and increased snow removal expenses.

Other parts of the country have been hit too. President Barack Obama Thursday decalred a disaster in snow-slammed Nebraska and ordered federal aid to supplement state and local recovery efforts. Damage assessments put storm costs from Dec. 22 through Jan. 8 at more than $8 million, not including the full cost of snow removal.

The impact on businesses from such storms is mixed. Higher sales of snow shovels and windshield scrapers are offset by canceled trips out to dinner.

Airlines and retailers could be among the biggest losers. Retailers that are concentrated in the path of the storms, such as BJ's Wholesale and Dick's Sporting Goods, also are likely take a noticeable hit to first-quarter revenue, analysts say.

Major airlines say it’s too early to put a dollar figure on the storms' impact. But one analyst said February's foul weather would cost them heavily. Robert Herbst, an aviation consultant, said many customers will ask for credits toward future travel instead of refunds. That should work in the airlines' favor.

For shopping malls and department stores, the loss of revenue may be harder to get back.

Dan Hess, CEO of research firm Merchant Forecast, said storms of this winter’s magnitude can trim sales by 10 to 25 percent for the week. When it happens in the slow months of January and February, "you don't make that business back," Hess said.

But the snow isn't all bad news: Snowbound consumers typically turn to shopping online, giving those retailers the prospect of an electronic boost.

Ski resorts, liquor shops and hardware stores also are among the winners as out-of-school kids hit the slopes and grown-ups buy shovels and booze.

At Cairo Wine & Liquor in Washington, co-owner Mitch Aaronson said the storm that dumped two feet of snow on the nation’s capital earlier this month helped tripled sales.

"People (were) even asking us for things we don't sell, like milk," Aaronson said.

Ski resorts are having one of their best snow seasons in years, helping to boost traffic during the Presidents Day holiday week. In Utah, managers at Snowbird were expecting a weaker season because of the slow economy until the storms came.

"We got off to a slow start with low snowfall, but what we're seeing after Christmas is the numbers picking up, especially with destination skiers,” Snowbird Ski and Summer Resort spokesman Jared Ishkanian said this week. ”The word got out when we started to get substantial storms by mid-January — seven feet in seven days."

Closed school and government offices boosted traffic to east coast ski resorts within driving distance of big cities. Heavy snowfall also helped cut the cost of electricity used for man-made snow, said Don MacAskill, general manager of Pennsylvania's Whitetail ski area, located about 90 minutes from Washington.

At Frager's Hardware in Washington's Capitol Hill neighborhood, owner John Weintraub sold out of Duraflame logs and couldn’t restock because his supplier ran out. In Philadelphia, James Crouthamel, a manager at Fairmount Ace Hardware, said sales of rock salt and snow shovels were booming.

The storms have also brought extra work for plumbers and other handymen.

"The day of (a storm) is kind of interesting, with lots of emergency calls," said Sal Mangia at Citywide Sewer & Drain on New York's Long Island. "But after it melts, that's what gives us more work — flooded basements, clogged drains and cesspools backing up."

The economic impact may continue to be felt long after the last of the snow has melted.