Being Unsentimental About Economic Meteorology

It was very cold across much of the United States in February in parts of it that usually don’t freeze up – literally and figuratively. While electricity in Texas garnered most of the attention, the weather was just as bad in many other states across the typically mild wintering South. Undoubtedly, last month was an exception to the seasons’ status quo.

The frozen electrical grid absolutely placed a kink in the energy sector, at least, but had it caused such a disturbance that the entire national economic system quaked in its aftermath? Economists and analysts didn’t really think so, at least when setting a few of their February projections. A modest dip was thought perfectly natural, but then the Federal Reserve last week paid out much more than modesty in its updated sharply declining Industrial Production numbers (where total output is still less than it was in 2014).

Now the central bank’s Chicago branch is piling on the downside. According to its National Activity Index, national activity in February 2021 might’ve been decidedly awful. How bad? A huge miss, down at -1.09. Even considering the cold spell in Texas, and its ice-cold electrical spillovers, analysts were still thinking the headline might only dip moderately from January’s rather hot “stimulus” overheated +0.75.

How to miss so badly? Two points on the CFNAI is like night and day, summer versus the depths of winter.

They are, of course, blaming “adverse weather” but it can’t just be that. The portion of the index relating to production contributed -0.85, which is atypically more severe than atypical cold, but the personal and consumption components also dragged nearly as much (-0.29 in February after adding +0.27 in January).

After all, -1.09 is in rare territory which is why it has our attention at the moment; going back to the beginning of the index, apart from January 1978 you don’t see anything below -1 outside of recession.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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