By Brittany N. Cox
Registered Investment Advisor at Nestlerode & Loy Investment Advisors
As I’m writing this, I am looking over the weather forecast for the weekend, and by the time you are reading it, we will either be getting the snowstorm or not. I also decided today, a few days before the storm, that it would be a good time to find a snow suit for my 4-year-old daughter. Well, that turned into a daunting task since apparently everyone else heard there is snow coming and bought snowsuits for their children, as well.
That made me wonder, how does a snowstorm affect the economy?
The winter storm that hit New York last January was reported to cost the economy hundreds of millions of dollars. That will get the attention of the public. But some economists scratch their heads at these reports since so much business is done online and over the phone in this era. Could a snowstorm really cost that much money? Yes, it can. The thing to note, though, is that the media knows they will get the attention of viewers by using terms like “approximately 1 billion dollars.” However, when it comes to a $17 trillion U.S. economy, $1 billion is not a large impact. It would make more sense for the media to say that the next big snow storm will likely cost the average individual in the U.S. about $3. However, that wouldn’t get as much attention from the viewers.
Significant weather events keep many people from being able to report to their jobs resulting in lost productivity for the business. This could create declines in revenue for the duration of the weather event. When you add to that the decrease in consumer activity, the economic impact to the business deepens. Not many people go out shopping during a snowstorm, or even rain. According to Planalytics, the major snowstorm that hit the northeast region in January 2018 eliminated $500 million in sales, even though the storm was not as bad as expected.
It seems like everyone flocks to the store before a storm to stock up on the essentials. This must account for some sort of boost in sales, right? Well, the effect is temporary, only affects a few types of businesses like grocery stores, and doesn’t add up to the amount of sales lost during the storm. Restaurants and some retailers are impacted greatly due to loss of sales during a storm. For example, if you were planning to go out to eat the night of the storm, you may not go out to eat another day to make up for it, which makes the period of the storm a total loss for the restaurant. However, if you were planning to buy a car, you might delay it for a day or two due to the storm, but you will be likely to still buy a car. The impact is different depending on the type of business, which makes the overall impact hard to measure.
Insurance companies also see a spike in activity around the time a winter weather event occurs. There is an increase in claims due to weather-related accidents and people tend to call and get quotes for “what-if” scenarios. For example, after the flooding in Texas last year, it was reported that only half of homeowners who were affected had flood insurance. This created a large spike in flood insurance quotes for companies in the south.
Another big contributor to economic activity during a snowstorm is airlines. Many flights are delayed or canceled during a weather event, such as a snowstorm, and some of those flights are not rescheduled. This results in a huge amount of revenue sent back out in the form of refunds. In early December of 2018, American Airlines cancelled 1,200 flights in Charlotte before a winter storm hit the Carolinas and Virginia. The airlines lost approximately two days of revenue for the cancelled flights and more revenue was lost on helping those stranded due to canceled flights.
What about our own state economy? There are many trucks and workers involved in treating the roads prior to a storm, clearing the snow during the storm, and cleaning up after the storm. PennDOT has budgeted $228 million for this winter. This budget is to care for about 40,000 miles of state roadways. There are about 4,500 on-the-road workers available to drive snowplows and other equipment for the winter. Last winter, PennDOT used more than 950,000 tons of salt and 622,000 tons of anti-skid material. To put that into perspective, in terms of cost, PennDOT pays an average of $64.48 per ton of salt and $22 per ton of anti-skid material. Everything included, PennDOT spent approximately $303 million to clear snow and ice on Pennsylvania roadways last winter.
The bottom line is that there are many factors to show economic effects of winter weather. While the effect on the U.S. economy for a snowstorm is not that great when compared to the entire economy, the effect on our state is quite large. A harsh winter could change the budget and create a deficit quite easily since the magnitude of winter weather is not known when the budget planning takes place. Large winter storms, or a winter with multiple weather events, could cause budget issues when spring comes and it is time to fix the roads and bridges in Pennsylvania.