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Winter’s Not Just Cold and Snowy. It’s Expensive.

Posted on 3/5/2014 by EDTP Coordinator in Small Business & The Economy

The mighty $16 trillion American economy can easily shrug off a snowstorm or two, even in regions unaccustomed to wintry snow and ice. But a prolonged bout of unusual weather is taking a toll, especially on small businesses like Abbadabba’s, a shoe store chain in Atlanta, which has weathered two major storms this year.

“It’s been bad, but it goes back even further than just this winter,” said Kristen Dellaporta, the chief financial officer, explaining that two years of mild winters had prompted the store to cut back on cold-weather gear, and an exceptionally rainy summer had helped to squelch profits in 2013.
This year, the company has lost business not only because it had to shut down during the storms but also because it couldn’t meet customer demand. “Last year we had boots and no winter, this year we had winter but no boots,” Ms. Dellaporta said. “We all need to start buying the Farmer’s Almanac, I guess.”
Abbadabba’s, where a wall of spring flip-flops is on display, generally places orders six months in advance and cannot restock on short notice. “When you’re small retail, your real business is inventory management, just having the right things at the right time,” Ms. Dellaporta said. “I would have loved to have been stocked up on nothing but rain boots, but that wouldn’t be practical.”
Economists have placed much of the blame for a recent spate of weak economic data on the effects of the unseasonable cold in the Northeast, Midwest and South, which they project will shave a few tenths of a percent off the growth of gross domestic product in the first quarter.
But much of the sudden slowdown in hiring, industrial production and retail sales, they hope, will be shrugged off come spring. Consumers seem to believe this, too. The Thompson Reuters University of Michigan preliminary index of consumer sentiment for February, released on Friday, showed that a slight drop in satisfaction with current economic conditions was offset by an uptick in optimism for the future.
Many weather effects are either transient (a snowstorm may keep you from the car dealership for a day or two, but it probably won’t cancel your plans to buy a car) or self-balancing (a hardware store may sell less paint and drywall but more shovels and salt). If a factory shuts down for a couple of days, chances are it will simply fill its orders a little later.
But in some industries, losses cannot be made up so easily. A restaurant forced to shutter on a Tuesday is not going to sell twice as many burgers on Wednesday.
At London Grill, a restaurant in the Fairmount section of Philadelphia, revenue is down 10 percent more than in the usual January slump, said Terry Berch McNally, a co-owner. But weather can also be fickle: On Thursday, just as Ms. McNally was fretting about whether her Valentine’s Day bookings would fall through, the afternoon brought twice as many drinkers as usual because local employers had closed early.
When weather strikes repeatedly, losses can build up. Valentine’s Day was blissfully sunny, putting an end to the immediate worries of both Ms. McNally, who got a flurry of last-minute reservations, and Susan McKee, at Old City Flowers in Philadelphia.
Thankfully, Ms. McKee said, the biggest day of the year for florists would not be a bust. But her revenue for 2014 is down about half from what it would usually be. Inventory has been hard to get because of grounded planes. Walk-in sales have been slow.
“It’s crushing me,” she said on Thursday, when Philly was blanketed by snow and ice. “I have thousands of dollars invested in perishable gorgeous flowers that I can’t get anywhere. I have three trucks parked outside the store, and I can’t move the trucks. This day is lost. There was no revenue today.”
Nonstop Couriers, a same-day delivery company that operates within 100 miles of the Philadelphia, has lost about $20,000, or around 3 percent of annual revenue, since this winter’s snow storms began in December, said Rick Slowicki, the president. The storms have also pushed back Mr. Slowicki’s plans to hire two new drivers and kept him from expanding his customer base because he doesn’t want to risk providing a late delivery for a new client.
His drivers have been affected, too — as have millions of other hourly workers, who make up about 60 percent of the work force.
Rich Ludwig, a Nonstop employee, said the storms had cost him $800 in lost wages. He has pulled back on socializing and groceries, cutting spending to “the bare necessities,” he said.
It is not yet clear how much of the poor showing in recent data is the result of bad weather, and how much the bad weather may simply be masking softer demand. On the one hand, said Ian Shepherdson of Pantheon Economics, weather “affects pretty much everyone all the way up the supply chain.” On the other hand, he said, “It’s completely impossible to disentangle weather effects from everything else.”
The effects can be tricky to nail down. In one analysis, economists at Capital Economics, a research firm, noted that through a series of complex chain reactions, a heavy blanket of snow might drive gold prices up and wheat prices down.
Speaking to Congress earlier this week, Janet L. Yellen, chairwoman of the Federal Reserve, said that weather might have been a factor in the weak jobs reports in December and January, but warned the public not to jump to conclusions. In a report this week, retail sales made a poor showing as well, decreasing 0.4 percent last month from December, and spending in December was revised downward to make the 2013 holiday shopping season the weakest since 2009.
Manufacturing also declined in January, despite a large jump in output from utilities because of the cold, with many economists concluding that the weather was not causing the retreat but making it look worse.
Mr. Shepherdson ticked off indications that some of the growth in the latter half of last year would not be sustainable: Manufacturing output was fed by a buildup in inventory, not demand, and increased spending by consumers was fed by a decline in the savings rate.
The construction industry, which is particularly sensitive to weather, added jobs in January, which some economists said was evidence that the weather was not the problem.
Jed Kolko, the chief economist for Trulia, agreed. “There are plenty of other factors that have held back sales in recent months,” including low inventory and pullback by investors, he said.