What Happens to the Economy in Cold Weather?

How extreme temperatures will impact the economy

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Feb 08, 2017
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Temperatures, winter storms and sporadic weather have shocked the nation this winter. Below zero temperatures usually occur in January or February, not the beginning of December as they did this year.

Understanding the way the economy rides on exterior temperatures is an important part of reading the economy correctly. The cold weather certainly has an impact on the economy.

Positive and negative effects

When it comes to the economy, there are pluses and minuses to cold weather. On the plus side, we’re more likely to see a rise in retail sales. On the downside, it can cause people to stay indoors rather than spending money on things like recreation and restaurants. It can also drive people out of the U.S. on vacations where temperatures are warmer.

The cost of snow removal, car accidents and drainage for cities can also be astronomical. With more snow and ice comes millions of dollars that must be spent on removal, but the snow does create jobs, reducing unemployment rates.

A rise in tourism

Though tourism is highest in the summer months when children are out of school, tourism can rise significantly in the winter when it’s particularly cold. People take off to Montreal for skiing, for example. During this time, the amount of snow at the resorts is vital. When snowfall is heavy, ski resorts see an influx of tourists, but when winters are warm and snow is limited, business drops significantly.

One study from the Natural Resources Defense Council (NRDC) examined the winter of 2011-2012, one of the warmest winters on record. During that time, ski resorts were forced to shorten their hours and use snow-making machines to cover their slopes and bring in tourists. There were far fewer people on the slopes as a result.

Because the winters have been cold with heavy snow this winter, snow resorts are far more populated as people enjoy the exhilarating winter sport.

We also see a rise in tourism in warmer areas, as cold-winter-dwellers escape the chill. The cold holiday season is prime time for them to hit up Florida or Hawaii in search of some sunshine. Trips to Mexico, South America, Australia and Africa are popular during the winter when people want to escape the weather at home.

Tourism within our country equates to billions of dollars for our economy every year, which is a welcome winter occurrence. But there is also plenty of tourism outside the country, driving business away from our economy and putting revenue in the pockets of others. There are certainly positives and negatives for our economy in this case.

More online shoppers

If you’re an online retailer, though, the cold temperatures are a gift from heaven. According to a Google Consumer Survey, 34% of consumers said that they shop online more in the winter than any other time of the year, particularly after New Year’s when holiday items go on sale. Valentine’s Day is also a popular shopping time as loved ones shop for romantic gifts shipped right to their door or flowers delivered to a spouse’s workplace.

Even if consumers can purchase their winter coats from boutique stores in town, they’re more likely to search major online retailers to find their purchases without leaving home. Shipping speeds are quick and return policies simple, making online shopping irresistible for the homebound consumer.

Increased revenue for clothing retailers

Most people find themselves unprepared when winter hits and they don’t have the proper attire for the weather. According to Paul Walsh, meteorologist for IBM Global Business Services, the winter weather influences higher spending significantly, particularly in the clothing sector.

“[The weather] affects what we buy, when we buy and how we buy,” Walsh told the Toledo Blade. He went on to explain that the winter weather has resulted in an incredible revenue surge for U.S. clothing retailers.

When the weather is cold, those who get cabin fever go to warm malls for recreation. They window shop to pass the time. This naturally inspires impulse spending. “The whole purpose of getting people into the mall is that they impulse buy a little bit, they self-gift a little bit,” Walsh said. “And a lot of that is lost in the online sale.”

Declining real estate market

It’s great for retailers, but as the temperatures decline, so does the real estate market. Fall and early winter are considered the worst times to sell a home. The primary logic behind this drop in values is most closely tied to the human desire to stay indoors during the winter. No one wants to go house hunting when it’s cold outside.

On the flip side, it’s a great time for buyers to get good deals on homes. Competition is down, and you’re less likely to run into a bidding war or overpay for a home if you make an offer on a house before March.

Additionally, most of the nation still adheres to daylight savings time, which means it gets dark between 4:30 and 6 p.m. starting in November and lasts through March. Since most people work until 5 or 6, it’s hard to go house hunting in the dark.

In other words, making an investment in real estate in the winter months may not be your most profitable option. Closely watching the fluctuations of the economy when the weather is cold is an important part of making investments in any sector.

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