Last week January retail sales numbers were released and were below consensus. Some market prognosticators pointed toward bad weather as a factor in the retail sales drop. There is no doubt we have had a tough winter, but are severe weather events enough to change investor strategy? I don’t think it does.
Why? Part of it perhaps is the media strongly reacting whenever there is a notable weather event in the Northeast, where most reporters reside. This may have an impact on how data is analyzed by investors in the short-term as a good portion of which also live in that region. Plus with weather becoming more of scientific debate with points/counterpoints surrounding global warming, adverse weather often gets more ink than it once did.
Being a Midwesterner, I have always been astounded at the attention that weather events in the Northeast get, especially when it pertains to snowfall. The fact of the matter is that while we in the Midwest get on average more inches snow in total per year, certain major cities in the Northeast usually get on average more large snow accumulation days per year than certain major cities in the Midwest.
Considering the Northeast does get on average many sizable snowstorms, conceptually the market should discount a range of potential severe weather events as many typically happen each year. However this winter arguably has seen worse weather than most, especially here in Minnesota, and some companies have guided numbers down due to weather. But there is also some danger into looking too closely at weather related data points, especially since there were also a large number of consumer discretionary companies that did not guide down due to snowstorms. Additionally, many would say retail sales were somewhat lackluster before January and internet sales, which are arguably weather independent, were also not as robust as earlier months.
But what about truly significant weather events like Hurricane Sandy? Don’t they have an impact on retail sales? Perhaps in the short run, but looking at the chart below one can argue that statistically significant changes in retail sales correspond more toward economic cycles and events (e.g. dot com bust in 2001 and 2008-9 financial crisis) than any weather event in particular.
Data source: US Census Bureau
Therefore I usually figure I am better off from an investment strategy standpoint determining valuations of retail companies, where we are in the cycle, and trying to discern retail trends than trying to predict short-term weather impacts.
Or perhaps as one famous Minnesotan, Bob Dylan, put it “You don’t need a weatherman to know which way the wind blows.”