We hear it every winter: pronouncements that a blizzard cost the U.S. economy hundreds of millions of dollars.
But in an era when so much business can be done over the phone and online, these estimates leave some scratching their heads. Could a simple snowstorm really cost the U.S. upwards of $1 billion, as some economists predicted of January’s blizzard that shut down New York City?
The short answer: yes, it can.
But it’s not that simple. First of all, the media knows that by pointing out that something “costs” $1 billion, it will get people’s attention. After all, if a reader could somehow get ahold of that money, he and his family could avoid working for generations to come. It’s a lot of money.
But for the $17 trillion U.S. economy, it’s chump change. It’s .005% of the country’s annual output. On a per-capita basis, it’s $3.17. On a conceptual level, it would probably be more honest to write that the next storm could cost you $3.17. (In fact, for the median Joe it would be much less, since income is unevenly distributed). That at least communicates the magnitude of the effect on the economy in a way that the average person can understand. Of course, if news reporters did really put these figures into such context, the public would realize that a story about the economic impact of an average blizzard wouldn't be worth reading at all.
That said, where do these hundreds of millions of lost dollars actually come from? According to Doug Handler, an economist at IHS Global Economics, one of the biggest hits the economy takes is in the form of lost wages for hourly employees. While salaried office workers get paid even if they can’t make it to work and can likely even work from home, hourly employees aren’t so fortunate. And it’s not as if all these workers can simply make up the money on another day.
The economy also takes a hit from lost sales at places like restaurants or retailers. Some of that consumer spending gets made up at a later date. If you are, for instance, planning to buy a car, a snowstorm will merely delay your purchase. But if you had planned to eat out the night of the storm, it’s not certain that you will still buy that meal another time. Another big contributor to lost economic activity is cancelled plane flights. It's costly to cancel and reschedule flights, and in many cases, some routes will not be rescheduled at all.
There is a certain point at which a snowstorm can go from being a small economic obstacle to something a bit more pernicious. That’s what happened in the winter of 2013-2014, when a series of severe snowstorms across America helped the economy shrink by 2.1% in the first quarter of 2014. In that instance, the bad weather was persistent enough to mess with supply chains. Trucks and air freight couldn't get to their destinations, mucking up inventory management. That led not only to fewer consumer purchases, but also to companies buying less than they otherwise would.
But even in the case of sustained periods of very bad weather like what we saw in the Northeast and Midwest last winter, estimating the economic effects involves a lot of guesswork. Economists know that output fell in the first quarter of last year in a way that isn't consistent with broader economic conditions, and they also know that snowfall levels were much higher and temperatures were much lower than usual in some of the most productive areas of the country.
Economists also make use of qualitative and quantitative survey data from the Federal Reserve and private groups to connect the dots. But in the end. it's impossible to know for sure how big a role weather plays in the economy. As Handler says, "it's more an art than a science."