G2 Weather Intelligence

Does Hot Weather Hurt the Economy?

Fascinating NPR story on an MIT study of the impact of climate on the economic output of poor countries.

Listen here or read the transcript below:

Hot Climates May Create Sluggish Economies

by David Kestenbaum

Morning Edition, July 17, 2009 · New research suggests that higher temperatures can have a damaging effect on the economies of poor countries. The study, by economists at the Massachusetts Institute of Technology, found that in years with higher temperatures, poor countries experienced significantly slower economic growth.

The research adds to an economic puzzle that dates back hundreds of years: Why do the poorer economies of the world tend to be in hot places, while the more successful economies are found in cooler climates?

The French writer Montesquieu wondered about it in the 1700s. Now there is significantly more data to work with. A graph of per-capita GDP and average temperature shows rich countries at one end — Norway, Germany, France and the U.S. — and poverty at the other end in Cambodia, Liberia and Congo.

Many researchers have written this off as a historical accident, perhaps a legacy of colonialism.

Ben Olken, an associate professor of economics at MIT, and his colleagues wanted to examine the temperature connection more closely. They decided that instead of comparing one country to another, they would look within countries. Did a hot year mean slower economic growth?

The answer appears to be yes. They found that for poor countries, an increase in annual average temperature by 1 degree centigrade corresponded to a 1.1 percent drop in per-capita gross domestic product.

It's "a huge effect," Olken says. The difference between a country that's in recession and one that is buzzing along amounts to a 3 percent shift in GDP. "So, 1 degree explaining a 1.1 percent shift is a huge effect of temperature."

It's unclear exactly why temperature would have this effect. It might be that crop yields go down, or that disease is more of a problem. Or it might just be what you could call the "sloth" theory — it's hard to work when it's hot out. Who wants to mow the lawn in August?

"This stuff is not implausible," Olken says, "If you look back at the U.S. before the advent of air conditioning, there were times when the federal government would shut down. It was too hot out."

The researchers found that temperature shifts did not appear to affect the wealthier countries, perhaps because of air conditioning, or because they already are situated in cooler climates.

The results suggest that global warming could increase the gap between rich and poor.

"One of the takeaways I have from this paper is it seems like the economic impacts of increased temperature in poor countries are going to be very severe," Olken says.

William Easterly, an economist at New York University, says the new study is fascinating, but he's not convinced.

"It's way too soon to take one statistical finding and say we have solved a 500-year-old problem of why temperature and per-capita income are associated with each other," Easterly says.

Easterly says he thinks cooler countries have stronger economies because of a historical accident. "It was Europeans who discovered first how to set up a prosperous market economy," he says. Europeans spread to other temperate parts of the world. That explains why the rich economies are there today.

Why didn't the hotter parts of the world catch up? "When you're ahead, you tend to stay ahead," Easterly says. The slave trade was one example of how that played out. "Europe and America benefited from the profits of the slave trade. And Africa was permanently harmed by the slave trade."

Olken says his team has checked and rechecked its results with a number of data sets. He says the temperature and GDP correlations keep showing up.

Whatever the cause, there are some countries that buck the trend. Singapore is just about on the equator and has a strong economy. Indonesia is growing fast.

Easterly says the great hope of global trade is that countries can adapt to do whatever makes sense in their part of the world. With time, they can overcome climate, even history.

Photo courtesy of NPR.org.

El Nino Mucho

Mike Halpert, deputy director of the Climate Prediction Center.  Hosted by Dave Iverson.

A thoughtful and balanced discussion on El Nino.  Listen in if you've a got a few minutes to spare.

Thanks to Angelo Quagliata for forwarding this to me.

- Paul

June 2009 Comparable Store Sales - Now To Find Quality of Earnings

Following is Richard Hasting's (Consumer Strategist for Global Hunter Securities) take on June retail sales in the US.

Click here for a copy of the full report which includes detailed company-level statistics as well as input from G2 Weather.

 
June 2009 Comparable Store Sales: 
Estimates Getting Easier – Now To Find Quality of Earnings

Summary:

June 2009 retailer comparable store sales reflected a variety of influences, with some retailers surprising with strong sales such as TJX, while others especially teen-oriented specialty apparel retailers struggling. We cover the day’s data in detail in the PDF available online here.

Highlights:

Department stores and off-price results slightly better than expected. We like to bundle department stores and off-price retailers into the same data pool due to similar merchandising and brands. Results in June 2009 indicated slightly better than expected results at certain department stores and better-than-consensus results at TJX Companies (TJX) (led by the MarMaxx division) and Ross Stores (ROST). Earnings quality in off-price retailing is much more transparent than department stores, thus we like the off-price retailing actual results today for earnings quality through at least Q2.  

Teen unemployment an issue. We cited teen unemployment in our June 2009 Comp Store Sales Preview (released earlier this week). Since we have every reason to believe it is likely to worsen, then we would be cautious on this subgroup going into the critical Back-to-School buildup. We make reference especially to the developing trend in the difference between the current month’s comp % and the fiscal year-to-date comp %. These widened sharply at Hot Topic (HOTT) by 10.2 percentage points, and at covered company, Buckle (BKE, a GHS Research covered name) where the spread widened by 5.6 points. We would be monitoring Aeropostale (ARO) carefully in the next two months to see if this spills over to ARO. 

Target (TGT) raising Q2 guidance but quality of earnings is an issue. Target missed comps estimates of -5.8% with a -6.2% actual comp and then raised Q2 guidance “through better than expected gross margin rate and continued expense discipline in our retail segment.” Our understanding of “gross margin” includes our understanding of supply chain; that suppliers are a major opportunity to reduce cost of goods sold. We therefore are inclined to interpret this as something other than product-specific margin growth – especially since TGT did not mention specific product lines as a source of margin expansion, and concurrently cited “expense discipline” thus reinforcing our concerns about quality of earnings.

Weather’s impact to remain an issue perhaps through September. Conversations this week with Business Weather Consultant, Paul Walsh of G2 Weather Consulting, suggests that the unfavorable weather that hit the Northeast the hardest during May and June could persist through September 2009. Please refer to his additional remarks on Page 13.

Consumer weakness hitting the entire intermarket system. We would not stop at comparable store sales as an end in itself: the consumer’s overall weakness restrains energy prices, thus hitting other markets and other stocks in other sectors. Sector rotation strategies remain problematic for as long as this effect remains. Refer to our look at the XLY/XLP ratio and gas prices on Pages 17-18 of this report

 

June 2009 Retail Sales Swamped by the Weather; July Outlook Similar

 
Demand for summer seasonal merchandise was down significantly in June 2009 across the three largest population centers in the US — the northeast, midwest and west coast markets.

Hardest hit was the northeast where persistent rain (>20 days during the month) and abnormally cold temperatures (coldest in 10 years) led to a dramatic year-over-year decrease in demand for summer seasonal items.  For perspective as to how dramatic the impact was on summer-time businesses, the Long Island Press described the sales environment this way: 

“For seasonal business owners on Long Island, it is the weather that affects the balance sheet, and June 2009 was the collapse of Enron, the housing market and Bernie Madoff all rolled into one.”
 
The Bottom Line: Long Island’s Economy Needs Sunny Skies, June 25, 2009

From a sector perspective, the biggest negative impact will be on specialty apparel, department stores and, to a lesser extent Mass merchants.  The big box home center retailers (HD and LOW) will benefit from the generally great growing conditions in the northeast which are compelling purchases of relatively inelastic lawn and garden care merchandise.

The extreme heat in the southeast was, on a macro scale, a neutral to slightly negative impact on the month as the correlations to heat and sales in June in those areas are negligible and there may some negative traffic impacts.  

For July, the persistent pattern of seasonally cool and wet conditions will continue in the northeast and Midwest and abnormal heat will continue in the south and southwest.  These conditions will continue to put price and margin pressure on apparel retailers -- as they struggle to overcome the weak demand environment with price incentives -- and will continue to fuel demand for home center/lawn and garden retailers.

Sex, Drugs and the Weather Channel?

"...the network’s advertisers prefer viewers who are awake."

Not sure if this is a direct result of the NBC takeover or if the folks at TWC are just "ready to rock" but, per a Friday story in The Atlanta Constitution,  The Weather Channel is ditching the elevator music and replacing it with rock and roll.

Here's the story:

Weather Channel turns to rock

By Jeffry Scott, The Atlanta Journal-Constitution, Friday, July 03, 2009

The drippy smooth jazz that for years has played in the background of the Atlanta-based Weather Channel’s “Local On the 8s” segments has been replaced with soft rock songs people can actually hum instead of going numb.

“I think we’ve been doing an injustice to our viewers playing, for the lack of a better word, elevator music on the segments for all these years,” said Geoffrey Darby, the cable network’s new executive vice president of programming, Thursday.

The old sound was so popular, the network released a CD of “Weather Channel Smooth Jazz” that went to No. 1 on Billboard’s Current Contemporary Jazz Album Chart. But all that smoothness let the programming slip too far into the background. This wasn’t great for the audience or the network’s advertisers who prefer viewers who are awake.

“People would have it on but they wouldn’t be watching and they wouldn’t be listening,” said Darby, who pushed for the change after joining the network in February. “We wanted music that would get their attention —- and this has.”

Now, instead of hearing Spyro Gyra in the background while the announcer is intoning the latest local update (“Sunny and 75”), listeners hear tracks from the Rolling Stones (“Can’t You Hear Me Knocking”).

Darby said the new sound can’t be thematically intrusive. So don’t expect the Doors’ “Riders on the Storm” with the next tornado alert.

And don't expect  Iggy Pop and the Stooges' classic, "Search and Destroy." 

Then again, if ratings slip, who knows?

Rock on, Weather Channel!

Photo courtesy of Lidal-k

In New York City, Number of Killings Rises With Heat

"What can you expect from a town that's shut off from the world by the ocean on one side and New Jersey on the other."  O. Henry, Gentle Grafter: A Tempered Wind (1908)

Following is the companion piece to the July 3rd article  In New York City, Fewer Murders on Rainy Days.

The bottom-line in New York:  the most dangerous time to be in the city is during summer-time heat waves.

The most dangerous place:  Brooklyn.

At G2 Weather, our focus is on the influence of the weather and climate on consumer (aka human) behavior and business.

These articles from the Times are stark examples of the fundamental impact of the weather and seasonality on the most basic and destructive human trait -- violence and murder.

Extended excerpt below. 

Read the article in its entirety here:  In New York, Number of Killings Rises With Heat.

A young boxer was shot dead outside a Bronx bodega at 3:30 a.m. on a Saturday last August. Weeks later, a 59-year-old woman was beaten to death on a Saturday night on the side of a Queens highway. On the last Sunday in September, violence exploded as five men were killed in a spate of shootings and stabbings between midnight and 6 a.m.

Seven homicides in New York City. None connected in any way but this: They happened during the summer months, when the temperatures rise, people hit the streets, and New York becomes a more lethal place.

There were more homicides in September than in any other month last year: 52. Next highest was August, with 51. Variations, of course, exist. There were 48 homicides last March, for instance.

Still, the prime time for murder is clear: summertime. Indeed, it is close to a constant, one hammered home painfully from June to September across the decades. And the breakdown of deadly brutality can get even more specific. September Saturdays around 10 p.m. were the most likely moments for a murder in the city.

Read the article in its entirety here:  In New York, Number of Killings Rises With Heat.

Heading to New York this summer?

Fuh getta about it!

 

In New York City, Fewer Murders on Rainy Days

Fascinating story from the NY Times (July 2, 2009) on the impact of rainy weather on the murder rate in New York City.  

Statistics confirm that the murder rate drops on very rainy days (days w/ greater than 1 inch of rain).

Might it be that murderers go bowling when it rains?  See yesterday's post:  "This isn't Nam, this is bowling"

You can read the full story below.  Click here to see the original on nytimes.com.

In New York City, Fewer Murders on Rainy Days

On Aug. 26, 2006, something unusual happened in New York City.

It was a Saturday in the heart of summer, the kind of day that averages more than two homicides. Yet the police reported no killings.

One other thing happened that day: It rained.

In fact, an analysis by The New York Times of rainfall and homicides for the last six years shows that when it rains substantially in the summertime, there are fewer homicides.

When there was no precipitation, there was an average of 17 homicides every 10 days. But when there was an inch or more of rain, the average dropped to 14.

That does not surprise Vernon J. Geberth, a former Bronx homicide squad commanding officer. He said that when there was a downpour, the police would sometimes joke, “The best cop in the world is on duty tonight.”

The gap is even wider when looking just at Saturdays in the summer. Those are the days that typically post the highest number of homicides in a year. When there was no rain, the average number of homicides for every 10 Saturdays in summer jumped to 24. For every 10 Saturdays doused with at least an inch of rain, the average number was 18.

These numbers may add up to something of a bright spot for a city that officially entered summer with the second wettest June on record, according to meteorologists at Pennsylvania State University.

With a few more than 200 homicides so far this year, the city is on pace for a low not seen since the early 1960s. The first few days of July promise more of the same damp weather, with a chance of rain every day.

The difference in homicides on rainy days is more pronounced in the summer than in other seasons. And when there was less rain, there were more killings. For instance, when the threshold is lowered to half an inch of rain or more, the average number of homicides every 10 days climbs to 15. And when there was less than half an inch of rain, the rate was the same as when there was no rain.

The Times’s analysis is based on comparing the city’s daily rainfall with homicide data obtained from the New York Police Department, covering 2003 to 2008.

Some criminologists caution against reading too much into the differences. Ellen G. Cohn, a professor at Florida International University, who has examined links between weather and crime for more than two decades, said the impact of rain on crime was “not much.” While she has not examined homicides in New York, she said rainfall tended not to strongly predict homicides in the United States.

Some studies found that other crimes, like aggravated assault, went down when there was rain. Professor Cohn said one reason might be that assaults more often involve strangers, and rain reduces the chances that people who do not know each other will encounter one another.

That theory is part of the reality on New York City streets, according to Mr. Geberth, who worked during the city’s crack epidemic in the 1980s. “In good weather, there are more people out on the stoops,” he said. “Somebody bad-eyeing somebody else, and the next thing you know, you have been dissed.”

But he believes the logic extends to homicides as well. “It doesn’t take much to get ‘deaded’ in certain neighborhoods. All you got to do is look sideways at the wrong people, and bingo, something gets set off and it’s crazy.”

He added, “On bad weather days, people are apt not to run into each other that are carrying grudges from the day before.”

Professor Cohn said that murders nationally were less likely to involve strangers. And rain does not deter domestic homicides, which usually happen indoors. Precipitation is also unlikely to stop killings that stem from illegal drug deals gone wrong.

Steven Messner, a criminology professor at the State University of New York at Albany who has studied homicides in New York City, agreed that rain was not likely to stop many killers. “People adjust to climate,” he said. “They get umbrellas, they go out. Humans are adaptable.”

Other factors may be in play. Rainfall usually leads to cooler weather, and cooler days tend to have fewer homicides, which may explain any drop in killings, Professor Messner said.

Rain can also make it harder for detectives to solve homicides. Evidence gets washed away.

“I remember standing out in the middle of a rainstorm with a body in the middle of the street, trying to work out what happened,” Mr. Geberth said. “Depending on how hard it is raining, we are losing stuff. We are losing bodily fluids. We are losing shell casings. That exchange of material from touch DNA to hair fibers is dissipated by the elements.”

In addition, witnesses can be harder to find in bad weather. Fewer people are out; those who are outside are usually distracted or are seeking shelter.

Edward C. McDonald, 42, who worked on homicides in the Bronx, said he could remember working on only one rainy-day homicide. That was near Yankee Stadium in 2005, when a gunman pulled up in a vehicle and shot a man sitting in a double-parked car on the Grand Concourse.

Even though it was a busy area with stores nearby, and the killing occurred just after a game, the police had a hard time finding witnesses.

“I was standing, guarding a crime scene and getting drenched,” Mr. McDonald said. “People were jumping in cabs. There were no witnesses, not because people saw it and didn’t want to talk, but everybody was concentrating so hard on the rain and getting out of there, nobody saw anything.

“Even stores across the street, even if those people saw anything, it would be hard for them to see with the torrential downpour,” he said.

“The other side of the coin was, if you came in on a nice summer day, you could see people picnicking in the parks, and we would say, ‘We are waiting for something to happen,’ ” Mr. McDonald said.

“Everybody’s out partying, people start drinking, old beefs pop up, and people get their beer muscles out and start fighting.”

And for those hoping a good rain will at least cut down on homicides, keep in mind: there are not that many summer days that get at least an inch of rain. It happens only about 1 in 20 days.

It only seems to rain more.

Photo courtesy of pelso

"This isn't Nam, this is bowling"

Maude Lebowski: What do you do for recreation?
The Dude: Oh, the usual. I bowl. Drive around. The occasional acid flashback."

While the record northeast rainfall and cool weather has wrecked havoc on traditional summer seasonal businesses, indoor venues have been flourishing.

Not the least of these -- bowling!

The bowling industry generates about $3B dollars from approximately 5000 bowling centers around the country. Lane usage represents 60% of revenues with the remaining revenue coming from concessions and merchandise. 

It all comes down to traffic -- and rainy weekends in the summer-time are like manna from heaven for bowling center operators.

Yep, June 2009 has been a banner bowling year.  

Following is an excerpt from an article published today (July 3, 2009) in the Framingham, Massachusetts MetroWest Daily News:

Families flock to indoor activities to escape wild weather

The old rhyme rings true: "Rain, rain, go away..."

As MetroWest drowns under days of rain and residents wonder what happened to summer, area families scrounge for activities that don't require sun.

In Natick, Fairway Bowling alley owner Helen Sellew said business has been good so far this summer - a season that is traditionally "not a good bowling time."

Families and groups have been crowding the alley's lanes, and while the alley typically closes for the Fourth of July, it will be open this year because the holiday falls on a Saturday, she said.

"It's been wonderful for us. ... I'm always praying for rainy weekends," said Sellew, who started Fairway Bowling 55 years ago.

Indeed. 

The weather "abides."

G2 Weather in the News: "Weather Taking a Toll on Retail Sales?"

The Bottom-Line: Why The Summer Sun Means More Than Just A Tan To The Long Island Economy

Photo  and story courtesy of The Long Island Press

Loved this article from today's Long Island Press.  Beautifully written by Michael Martino. 

Read the excerpt below.   

Why The Summer Sun Means More Than Just A Tan To The Long Island Economy

The rhythm on the Island this time of year is usually bass-heavy, a steady sequence of thuds that are the suburban equivalent of tribal drums. It is the soundtrack to a mating dance, and as countless tanned bodies bend into one another, they feel the beat through the floor and the sun on their faces at one of the many clubs, bars or restaurants that rely on Ra himself to set the wheels of nature in motion. It is summer on Long Island, a time of Earthly celebration as the sands warm and a current of booze washes across our shores.

The rhythm has been different this year, though. The steady tapping of rain has replaced the power of driving bass lines, the clinking of beer bottles and the hum of boat motors idling dockside. At a time when Long Island’s economy needs a shot in the arm, June has all but been washed away, and the crucial summer economy has to make up for a lot of lost time.

June has been a non-stop cascade of rain and gray, misty days. The rough start to the important season puts a lot of pressure on Mother Nature to deliver nothing short of perfect weather in July and August. On Long Island, where tourism has been the most important economic engine since the departure of the aerospace industry, the difference between a sunny weekend and a rainy one can mean jobs. It can mean the life (or death) of a business that relies on the skies to stay clear.

It’s not about the turbulent international economy, either. For seasonal business owners on Long Island, it is the weather that affects the balance sheet, and June 2009 was the collapse of Enron, the housing market and Bernie Madoff all rolled into one.

Nice!

To read the rest of the story, click here.