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Financial Freeze: Winter Woes Cost the Economy $15 Billion

<p>As the snow piles up, so have the costs.</p>
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As the snow piles up, so have the costs.

A succession of winter storms that have walloped large swaths of the country since December have taken a $15 billion bite out of U.S. businesses so far, according to one estimate, and the season has weeks still to go.

In the short run, the impact of softer retail sales, property and crop damage and lost productivity at work is likely many times that amount. But since much of the hit will be offset by a pickup in sales and production later this year once temperatures rise, the lasting impact on the $16 trillion economy will be minimal, say economists.

“If the first quarter takes a little hit there’s going to be some bounce back to make up for it in the second quarter,” said Chris Christopher, an economist who tracks consumer spending IHS Global Insight. “For the year as a whole this should not have much of an impact.”

Car dealers, for example, have taken a big hit as severe winter weather kept potential buyers away from showrooms. Last month, sales of vehicles and parts dropped 2.1 percent, or roughly $1.7 billion, according to data release by the government Thursday.

Consumers who were ready to buy a new car before the Polar Vortex swooped down on them will likely return after the snow has melted from the showroom parking lot.

Lost for good

Still, some business swallowed by storms will be lost for good. “You don’t go out and buy three dinners the next time you go out to a restaurant,” according to Evan Gold, who tracks the weather’s economic impact for Planalytics, a business weather intelligence firm.

Gold figures about $15 billion worth of weather-related business losses will never be made up. His back of the envelope estimate assumes this winter’s storms have effected about 100 million people and that roughly 10 percent of lost business is gone for good.

Economic growth forecasts are being shaved and many economists are citing the nasty weather as one of the factors. And just a tenth of a point pullback in Gross Domestic Product growth represents about $4 billion – which is one reason these estimates always vary so widely.

“No one can jump to any solid conclusion until we shovel out of the snow.”

Besides weather, job growth has been weaker than many analysts had expected. Industrial production has slowed, possibly because of a large build-up of inventories in the last three months of 2013. The total hit to the economy from a host of factors could be much larger.

“Extreme temperatures and severe ice and snow are making it increasingly difficult to assess if the retail sales slowdown is temporary or a telling sign of a longer lasting weakness in the consumer-fueled economy,” said National Retail Federation Chief Economist Jack Kleinhenz. “No one can jump to any solid conclusion until we shovel out of the snow.”

Some sectors – like some regions – have been hit harder than others. Transportation has taken the biggest punch, as snarled roadways and airport bottlenecks have reverberated throughout the economy, stalling shipments of finished goods and raw materials and cutting into retail sales while snow- bound consumers left malls and restaurants all but empty.

Impact harder in the South

“These impacts are magnified in the South, where the infrastructure is not in place to respond quickly to these storms,“ said Tim Doggett, Senior Principal Scientist at catastrophe modeling firm AIR Worldwide.

With the national air traffic system booked at near capacity these days, any weather delay reverberates quickly across the county. U.S. airlines cancelled 49,000 flights and delayed another 300,000 last month, according to masFlight, which tracks airline operations.

Those backups cost passengers more than $2.5 billion and airlines another $75 million to $150 million. The roughly 30 million passengers stuck en route cost their employers billions in lost productivity. Those who were stranded also had to shell out for hotel rooms and meals during the average 18 extra hours it took them to get where they were going.

Those out-of-pocket expenses came back into the economy as packed airport-area hotels and restaurants enjoyed a surge in business.

Throughout the economy, there are winners and losers when severe weather strikes. For every empty movie theater, there’s a landscaper earning overtime plowing driveways. That’s why the overall, net long-term economic impact of severe weather typically amounts to a tiny fraction of the U.S. economy.

The same applies to losses from damage caused by frozen pipes, downed trees or car accidents. To be sure, those losses can be significant. Last year, for example, a single storm in February inflicted some $690 million worth of insured losses and $1.3 billion in economic losses, according to the Insurance Information Institute.

The costliest on record for damages was the Blizzard of 1993, which produced $5 billion in overall losses. (Despite the extreme temperatures in much of the east, this year’s storms aren’t expected to produce widespread property damage, according to AIR’s Doggett.)

But those numbers represent just the cost side of the ledger. For every auto claim paid out, a repair shop enjoys a pickup in business – money that goes right back into the economy to boost growth. Even if some money is lost in that equation, much of it will likely be made up next year with higher insurance premiums.