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The weather' is only a good excuse when it's not an excuse

Published by Business Insider on Thu, 18 Aug 2016

CEOs, investors, and economists love to blame the weather.Here's a short sample of excuses from the last several quartersalone:Bank of America Merrill Lynch said that the warmer-than-average October probably negatively impacted the month's retail sales. (October 2015)Macy's CFO said there had been weak interest in the company's fall apparel due to warm weather. (November 2015)Dick's Sporting Goods CEO saidslowing sales could be attributed to "funky weather." (November 2015)High Street retailer NEXT said "unusually warm weather in November and December" led to a "disappointing" holiday season. (January 2016)The basic thinking here is that unseasonably warm or cold weather alters the way Americans shop. This makes sense, to a certain extent:if it's 80 degrees outside, youmight notexactly be in the market for a parka.But the cynical read here is that companies and economists use "the weather" as an excuse for other, real problems with their business and/or the economy. Perhaps, ourhypothetical American shopper didn't buy a certain winter coat at a given department storebecause they bought it on Amazonor because the department store looked chaoticor because wage growth has remained low since the Great Recession not because of the weather.F0r what it's worth, back in January, Bank of America Merrill Lynch economist Michelle Meyer, noted that her team found "little evidence of a weather effect on total sales."She plotted the deviation for total retail sales excluding cars for the month of December over the past 25 years against the same measure for temperatures over that same time period and found no correlation.However, despite the fact that everyone blames the weather in what feels like every earnings call, folks fall silent when it comes toeffects from the weather that could actually change things up, such as La Nia and El Nio."La Nia episodes can have an outsized economic and financial impact. ... Yet surprisingly little about evolving weather developments finds its way into the business or popular media until after the fact," observed a Deutsche Bank team led by strategist John Tierney in a note. "And historical evidence suggests that investors can be slow to price in weather patterns until things are fairly far along. A key reason is that most people simply do not understand the underlying weather drivers."For those unfamiliar, La Nia is characterized by powerful monsoons that could flood low-lying areas, while El Nio comes withunusually dry weather. And,notably, theNational Oceanic Administration Agency confirmed that La Nia is coming.Here's Deutsche Bank again:"Given the many far-reaching implications, investors should pay closer attention to the potential flipping of the weather conditions from El Nio to La Nia in the near future. A moderate La Nia will benefit Southeast Asia and Australia by bringing an end to the prevailing drought conditions and improve the production of agricultural commodities such as rich and palm oil. In contrast, a very powerful La Nia event would cause widespread destructive flooding, offsetting the benefits of more rain in the region."As Business Insider's Akin Oyedele noted earlier, one area in particular that Deutsche Bank is keeping its eyes on this time around are Asian currency markets.Importantly, although these weather eventshit the equatorial Pacific particularly hard, theycould also have ramifications on other economiesgiven increased global integrationincluding in the US.For example, back in 2011, heavy rains and flooding forced many factories in Thailanda major hub for hard disk drivesto close down. That led worldwide hard drive production to drop by 28% and the production of notebooks, digital video recorders, and other devices to stall. Intel's profits fell by $1 billion in Q4 2011, according to data cited by Citi Research in 2014.And the total estimated losses attributed to the floods were $45.7 billion, according to Citi.That seems like an more appropriate time toblame the weather.SEE ALSO:What 25 major world leaders and dictators looked like when they were youngJoin the conversation about this storyNOW WATCH: This lunch box for adults could change the way you eat
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