Thursday, January 7, 2010

Snow and Economic Shocks

With temperatures plunging to -20 degrees in Benson (just a few miles from Oxford where I live) this is becoming the coldest winter since, well at least, since the start of global warming.


An impulse buy, the snow made me go and buy a cheap mountain bike from Halfords. I was the only customer in the shop yesterday. But, I did cycle to work today. At least some goods benefit from bad weather...

For those with long memories they may remember the great winters of 1947 and 1963.

In 1947, the economic situation was different though with some interesting parallels. It was a time when public sector debt was over 200% of GDP (making our current situation of 60% look relatively not too bad). It was also an age of austerity - rationing and frugal spending habits were the order of the day.

Last year, one of the most notable changes in the economy was the rise in the savings ratio and the new habit of paying back debt - rather than taking more on. In a way we could talk of a new era of frugality - but even so, it's a frugality which has led to record sales for Sainsbury's, Tescos and other big retailers. It's a frugality which still saw a record 2 million new cars registered in the UK during 2009.

So although, we are saving more some habits die hard, which is probably a good thing given we need a relatively strong consumer sector to maintain economic growth.

How Much Can Snow Affect the Economy?

I don't have to hand any report which investigated the impact on economic growth of an economy impacted by unexpectedly bad weather.

Anecdotal evidence suggests that business was very quiet yesterday and is slowly picking up today. If transport difficulties continue, retailers could see a real hit to their revenue this week.

Some spending will be merely delayed until the weather improves. But, in this kind of shock, output will be lost as production is partly halted and spending limited.

If it is just a week of bad weather the overall impact on the economy will be limited, but, if weather problems were to continue for a month, it would start to be much more serious. It would be the last thing the economy needs at the moment.


Supply of Salt

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