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    Warmer Winter to Support US Growth in Q1 2016

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    After two consecutive harsh winters, in both early 2014 and early 2015, milder weather conditions are expected to support economic expansion in the first three months of 2016.

    Kristian Rouz — The past two winters prompted a decline in US GDP, hitting consumer spending and construction, among other sectors. This coming winter is going to be milder due to a climate phenomenon which has been dubbed El Niño, pushing US GDP slightly higher.

    As outlined in the research of several major US financial institutions, including JP Morgan Chase & Co. and Bank of America, a change in the wind has affected North America. This stands to deliver more warm air to the continent in early 2016, contributing some 0.1% to US economic growth in Q1. The same wind pattern may also increase the US GDP by 0.55% for the coming year, according to the International Monetary Fund's (IMF) estimates.

    A milder winter, resulting from warm winds, would accelerate consumer spending: people would go out instead of staying indoors. The construction and real estate sectors would also benefit from the warmer weather conditions, as development sites would not suffer from work disruptions.

    "Should the coming winter resemble past El Niño events, the lift to growth would likely be manifest in construction and consumer spending," Michael Feroli of New York-based JPMorgan Chase said.

    The last two winters had a brutal effect on US GDP. Frosty weather conditions slashed the US economy by 0.9% in Q1 2014 and slowed economic expansion to only 0.5% in Q1 2015. Generally, this time around, El Niño would allow for more economic activity during the winter and early spring in the US.

    El Niño occurs when winds change, allowing warm oceanic currents from the equatorial Pacific to reach the US West coast. The warm air currents provide milder winter conditions throughout  North America, reaching as far as the Midwest and New England. Since 1950, El Niño has happened three tims.

    The JPMorgan report reiterates that this coming El Niño would boost the US GDP by 0.4% for the year. Apart from that, the usual statistic adjustment would further boost the US economic performance due to the base effect in comparison with the lackluster first quarters of 2014 and 2015. However, there is a risk of overestimating US economic performance in Q1. Moreover, as the US Department of Commerce are currently modifying their GDP count methodology, initial estimates for Q1 might be very inaccurate.

    "The seasonal factors could be looking for a cold winter akin to what we had the prior two years and actually risk over-adjusting the data higher," Michelle Meyer of Bank of America in New York said.

    As the US Fed nears its first hike in borrowing costs since 2016, stronger projections for early 2016 provide further support to the potential policy move in December.


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