How Mild Winter Heats the Economy

The El Nino weather pattern warmed up winter across the United States and business for farmers and construction companies. Lower spending on home heating also gave U.S. consumers more to spend on other things for an overall boost to the economy.

In a year like this one where everything weather-wise is flip flopped by the effects of the El Nino weather pattern, Americans have experienced unseasonably warm weather in the East and cold weather in the West.

An El Nino weather pattern is defined as a disruption of the ocean-atmosphere system in the Tropical Pacific with unusually warm temperatures that affect weather and climate around the globe. Here’s what the National Oceanic and Atmospheric Administration says are the likely results for North American weather from late fall 2015 through this winter:

  • Wetter: Southern U.S. from California to the Carolinas then up parts of the East Coast
  • Drier: Parts of the Ohio Valley, Great Lakes, Northwest and Northern Rockies
  • Cooler: Desert Southwest, Southern Plains, Northern Gulf Coast
  • Warmer: Northern tier of states from the Pacific Northwest to the Northern Plains, Great Lakes, and Northeast

Considering this unusual weather, what’s the impact on U.S. consumers, businesses and the economy? PNC Bank’s senior economist Gus Faucher provides his perspective:

POV: What does the first strong El Nino since 1997-98 mean for our economy?

Faucher: The current El Nino weather pattern is likely a small net positive for the U.S. economy. North American agricultural output will get a small boost, while agriculture in other parts of the world tends to take a hit.

In addition, milder-than-usual weather in much of the northern part of the country means more construction activity. This will offset the hits to recreation/tourism from less snow, and the hit to retailers from lower sales of winter clothing/accessories. Consumer spending on home heating will be lower, but they'll spend most of the savings on other items.

POV: How does this compare to the extremely cold weather of 2014 and early 2015? 

Faucher: Cold weather, particularly in early 2014, was a significant drag on the economy. Storms and cold temperatures in much of the country disrupted production and construction, and caused consumers to hold off on some spending.

POV: How much of an impact will this El Nino have on the U.S. economy?

Faucher: It will be a slight positive in the first quarter of 2016, maybe adding 0.1 to 0.2 percentage point to annualized growth for the U.S. in the first quarter.

POV: Some ski resorts in the Northeast have operated on a limited basis. What's been the impact?

Faucher: There are certainly parts of the economy and regions of the country that are being hurt by the El Nino effect. For ski resorts, which make a lot of their revenue during short seasons, the lack of snow during the Christmas/New Year's holidays was a significant hit to profitability.

But, this is just a small piece of the economy and consumers are likely to spend their money elsewhere. The overall hit to the U.S. economy from the skiing industry will be negligible.

POV: What about retail sales?

Faucher: Some retailers selling winter apparel and winter sports equipment will take a hit. But, that simply means consumers will have more money to spend on other things. Overall spending won't suffer. In fact, lower home heating costs means that consumer spending, especially outside of those areas directly hit by the weather, should benefit.

POV: The government’s economic data are usually seasonally adjusted. How do you quantify the impact of the El Nino-related weather in your reporting?

Faucher: We take into account normal swings in the weather, such as reduced construction activity during the winter, or increased spending on home heating. It's only when weather is significantly different from normal that it shows up in the economic data.

In addition, the weather needs to affect a large portion of the country for a significant amount of time – more than just a day or two – to make a difference in the national economic data. Of course, that doesn't help resort towns in New England that depend on the weather for their livelihood.

Gus Faucher says the mild winter has meant
more money for consumers

December 2015: New Records

  • It was the wettest and warmest December on record for the contiguous United States.
  • 29 states had a record warm month. Only the West had near-average temperatures.
  • The average of 38.6 degrees beat the previous record of 37.7 degrees in 1939.
  • It was also the deadliest December in 62 years with at least 20 deaths due to severe weather and flooding.