Here's some interesting analysis out of the San Francisco Federal Reserve.
In a new paper by Daniel Wilson, research adviser at the SFRB and Catherine van der List write that that a warmup last winter had market-moving implications for May’s jobs report.
The Labor Department’s May report showed hiring slowed sharply that month, surprising many economists. The report resulted in the dollar losing value and Treasury yields falling to near lows for the year. Many economists cited the weak report as a reason why Federal Reserve policy makers held rates steady at a meeting 10 days after the report was released.
The San Francisco Fed researchers say weather—specifically unseasonably warm winter temperatures—were largely responsible for the surprise figure. When adjusting for weather effects, U.S. employers added 162,000 jobs in May, rather than the 24,000 estimated by the Labor Department, according the report. The weather-adjusted figure is more consistent with the prior trend of steady, if slightly slower, job creation during 2016.
The researchers said unusually warm temperatures boosted hiring in February and March. The Labor Department said the U.S. economy added 233,000 and 186,000 jobs in those months. The better weather caused about 100,000 more jobs to be added those months than would have otherwise occurred, according to the researchers.
“May employment growth appeared to be hampered by a kind of double whammy,” they write. “May’s economic activity was held down by an unusual cold spell, and the warm February and March temperatures pulled some employment forward that normally would have occurred in May.”
The San Francisco researchers’ method is based on local weather observations and county-level employment data, and building that up to show a national effect.
They found average high temperatures, especially in the winter and spring, have a larger influence on employment than other weather, such as rain or snow fall. And the effect of temperature variations is long-lasting. In spring months, a one standard deviation increase in temperature, about 12 degrees Fahrenheit, is associated with 0.14 percentage point higher employment growth in the same month. But then that employment improvement is offset over the next three months, the paper found.
The effects from rain or snow are less than a third as strong as from temperature variation, but a combination of multiple weather events can have a significant impact. That happened in February 2015.
There was a record-breaking snowstorm at the beginning of the month in New England, another storm toward the end of the month in the mid-Atlantic, and frigid temperatures across much of the Midwest and East. The snowfall alone held down employment by about 26,000. Adding in other weather variables in that month, about 80,000 fewer jobs were created, according to the research.
(via Eric Morath at The Wall Street Journal)