It’s Official: The Weather’s To Blame… Maybe

The new Fed Chair Janet Yellen thinks the economy will revive in the spring. “It’s really quite a range of data that has been soft recently,” she told the Senate Banking Committee yesterday. “I think it’s clear that … unseasonably cold weather has played some role in much of that.”

The numbers have certainly been wobbly lately, including disappointing January reports on payrolls, retail sales, and industrial production. Not surprisingly, it’s also obvious that the broad macro trend suffered a setback in the first month of the new year. But the economy is still growing, albeit at a lesser rate, according to the January update of the Chicago Fed National Activity Index, a benchmark built around 85 indicators. For now, the slower pace still doesn’t reveal a clear and present danger when it comes to estimating recession risk, according to the data through last month via the US Economic Trend and Momentum indices.

“What we … will be doing in the weeks ahead is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, are due to a softer outlook,” Yellen said.

Welcome to the club. But clarity can’t be rushed. A reliable first estimate of what’s in store for the spring won’t be known until we see data on March economic activity (or does anyone think the February reports will be encouraging?). Otherwise, it seems that we’ll be in the dark until at least April.

Meantime, the Fed’s taper will roll on. “We expect to continue reducing the pace of [bond] purchases in measured steps,” Yellen advised, “which would mean ending completely the purchases, winding down and ending some time next fall.”

Unless and until we discover that there’s less to the blame game with weather than assumed.