Mild winter may have artificially inflated jobs data, economists fear

April 6, 2012

As most Americans basked in the warmest, sunniest March in half a century, economists stared at the skies with dread:

Could good weather portend bad news for the economic recovery?

Economists say the mild winter has artificially inflated job growth. February alone stole as many as 72,000 positions from March and future months, according to Macroeconomic Advisers.

Translation: The surge in hiring early in the year may not be as strong as it appeared.

The unusual weather began in January, which was the fourth warmest in more than a century. February ranked in the top 20, according to government data. Weather consulting firm Planalytics said several major cities experienced their warmest March in 118 years, including Chicago, Detroit, Minneapolis and Oklahoma City, where temperatures were about 15 degrees higher than average.

For many people, that meant an early debut of open-toed shoes and dinners al fresco, and early mulching and spring cleaning. It also meant more jobs for construction workers and retail employees to keep pace with demand. Planalytics said demand for jumped 40 percent last month for lawn mowers, 17 percent for sun care and 5 percent for bottled water.

For economists, it means a statistical nightmare.

Typically, these bumps in demand are evened out through a process called seasonal adjustment. That allows researchers to compare one month’s economic activity with the next for a more accurate picture of the nation’s health. But this year’s weather was so abnormal that those models fell short, and economists are now scrambling to figure out how much of the growth over the past three months was simply due to a glitch in their systems.

“When the weather does not follow a normal seasonal pattern, then the seasonal adjustment cannot adjust for it,” said Chris Varvares, senior managing director and co-founder of Macroeconomic Advisers.

Varvares’s firm estimates that 30 percent of the 227,000 jobs added in February were the result of warmer weather. An analysis by Goldman Sachs found that the average monthly job growth between December and February was actually 210,000 when weather is factored in, not 245,000.

Economists are quick to note that even the revised numbers aren’t bad — they’re just not great. And that may help explain why recent data on consumer spending, manufacturing and jobs have looked rosier than actual economic growth would suggest.

Forecasts for the nation’s gross domestic product during the first quarter hover around 2 percent, a middling number at best. Somewhere there is a disconnect, and Mother Nature is a valid scapegoat.

But unraveling the impact of weather is not always easy. Macroeconomic Advisers initially predicted that as many as 58,000 jobs would not materialize in March because they had already been taken in February. But then it hedged the bet as March turned out unseasonably warm as well.

On Friday, the Labor Department reported that the job market slowed in March as employers expanded payrolls by 120,000 jobs, falling short of expectations.

Varvares said the labor market boost from the mild winter will eventually even itself out. Though it may mean dips in job growth in coming months, the fact that workers found jobs earlier in the year — and pocketed a few more paychecks — could wind up being a net benefit to the economy, he said.

And despite the hand-wringing over the weather, economists seem to agree that the fundamentals of the recovery are solid. Bob Baur, global chief economist for Principal Global Investors, said he believes that the second half of the year will pick up steam as state and local governments enjoy rebounds in tax revenue and layoffs slow down.

“We’re confident that the U.S. economy today is in a sustainable expansion,” he said. “These things that we’ve been talking about are mostly for data nerds like me and other economists.”

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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