3 reasons the economy has some spring in its step
FORTUNE — Blame it on the weather.
That was a common refrain market watchers heard in recent months, as a slew of confusing data showed that consumers and the economy weren’t quite as healthy as they should have been.
First, we had a couple of lousy jobs reports — in December, for instance, the economy added just 84,000 jobs, less than half of what it had been averaging the previous two years. Then came other disappointing readings, like poor auto sales in January and the Institute for Supply Management’s state of the of service sector in February, which showed the weakest expansion of activity in four years.
Bearish commentators took pleasure in some economists’ efforts to blame poor data on the weather, as it seemed like every piece of bad news was explained away by bad weather, while good news was evidence of an accelerating economy.
There’s an explanation for why economists were thinking this way, however. Standard economic models predict that after a downturn like the 2007-2008 recession, the economy will grow at above-average rates for a time until it reaches its potential. And while the economy hasn’t recovered nearly as quickly as economic models have been predicting all along, the American economy has been growing and adding jobs for years now. But because it hasn’t reached its pre-crisis potential in terms of jobs and overall economic activity, most economists believe we will at least reach our previous highs before we sink into another recession.
And it looks like the blame-the-weather crowd was, in fact, right to dismiss a winter’s worth of worrying data. Here are three reasons why it appears that the economy has shaken off the cold-weather blues:
1. Retail sales. The Commerce Department said Monday morning that retail sales increased 1.1% in March, above the 0.9% increase economists were expecting. The increase was also the largest month-to-month rise since September 2012, suggesting that consumers had been waiting for warmer weather to spend big.
2. New car sales. U.S. GDP is composed primarily of consumer spending. So when shoppers are spending on big-ticket items like cars, this is a good sign for economic output and, ultimately, job growth. That’s why economists were heartened earlier this month when automakers announced that they had sold, at an annualized rate, 16.4 million new cars in March — the highest number since June 2006.
Again, we see the effects of the weather. The jump was much higher than analysts expected and, according to an analysis by Gary Thayer, chief macro strategist for Wells Fargo Adivsors, “Some of the car and truck sales were probably pent-up demand from the temporary dip during the past few months.”
In other words, don’t expect increases in sales of the same magnitude each month, but rather take the most recent jump as making up for a weak winter. Sill, the recovery in auto sales is encouraging. Writes Thayer, “The uptrend in car sales during the past few years is almost a mirror image of the downtrend in the unemployment rate during that same period. This clearly shows that moderate economic growth eventually gets the U.S. economy to a better place, even though it’s been frustratingly slow.”
3. Jobless claims. For most Americans, economic data is meaningful only when it touches their lives. Is it easy or hard for me to get a job, start a business, and grow my income? This is why the press pays so much attention to monthly jobless data, which can, unfortunately, be very noisy. As a supplement, economists track the number of Americans applying for jobless benefits for the first time as a gauge of the labor market. If this number falls, it’s a good sign that the labor market is getting healthier. On Thursday, the Labor Department announced that this number dipped to 300,000, its lowest level since May 2007. The four-week average also fell to 316,250, below economists’ expectations, and to a level that is consistent with previous economic expansions:
As you can see, despite the noise in the monthly jobs numbers, jobless claims have been falling for years now, even without the very encouraging reading of just 300,000 on Thursday.
It’s easy to make fun of economists and their predictions. After all, anybody predicting the future is going to be wrong much more often then they are right. But at least at this point, it looks like blaming poor data on unseasonably cold weather was actually right. The economy is picking up where it left off in the fall: slowly, but surely, recovering.