Everybody Blames the Weather

Brian Hicks

Written By Brian Hicks

Posted March 4, 2014

snow street abandoned car

This winter has been bad. Just when we’ve had enough; when it’s not so pretty anymore, the driveways are finally cleared, the temperatures start to rise, and we finally get the kids out of the house, here it comes again –Old Man Winter.

It’s freezing out there! Some states have had had their snowiest year on record, and in total this winter is going to cost the U.S. roughly $5.8 billion dollars.

But do we really need to be singing the wintertime blues? Heck, even California caught a little much-needed rain this winter. The truth is, we all need someone to blame. Me, for my poor aching back – lift with your knees for crying out loud – others for their business, or lack thereof.

Some industries legitimately suffer because of the winter. Others look like they’re using this winter as a crutch for less than stellar results.

The fact is, the weather does impact commercial activity. About 30 percent of the United States’ gross domestic product is either directly or indirectly affected by weather and climate.

Generally speaking, Wall Street takes weather into account, and seasonal changes in business can be just as predictable as anything else. But this wilder-than-usual winter managed to throw a freezing wrench into commerce and industry.  I guess we should have been ready when meteorologists started throwing the “polar vortex” in our faces back in January.

Now, I’m not saying it’s okay to go around playing the blame game; nobody likes a complainer, but General Motors saw sales fall one percent last month as much of the nation was pounded by storms. Natural gas and crude oil prices have also seen increases. Propane has inevitably gone up as well.

The Blame Game

The good folks in Detroit say that the rough weather has been hurting sales, but that it also turned up at the end of last month, right around the time that Mother Nature gave us a little taste of spring.

GM says it sold just over 222,000 cars and trucks in that time, with sales up almost 22 percent. But the month’s total sales for its top-selling Chevy Silverado pickup were down 12 percent.

Overall, sales have been sputtering through the winter. But while GM sales were in decline, Nissan (TYO: 7201) and Chrysler were able to report double-digit increases.

While GM comes to grips with its meager winter, other industries, like in gas and oil, and many of the upstream companies have seen prices shoot up. A lot of these revenues from these companies come from producing and selling natural gas liquids (NGLs).

Among them are: Range Resources (NYSE: RRC), Chesapeake Energy (NYSE: CHK), SM Energy (NYSE: SM), and Linn Energy (NASDAQ: LINE). The price of NGL is an important indicator for these revenues, and an overall track of how well the energy sector is performing.

If we look at the end of February, ethane, isobutene, and natural gas all traded flat, but propane and butane decreased 13 percent and 3 percent, respectively, which caused the NGL barrel price to go down.
Heading into March, NGL was trading down 4 percent.

This is important because NGLs, which have always largely tracked crude oil prices, have seen a shift in recent years, and now a large percentage of the average NGL barrel price is made up of ethane and propane, in large part due to the shale boom that has sent prices downwards.

Cold weather has been pushing propane up, as it is used more extensively in home heating, something we need a whole lot of as we wait for warmer days. The same is said for natural gas that serves the same purpose. This has been the trend that we’ve seen through these winter months. And as ethane trades close to natural gas, it too, will follow the trend.

Getting Covered

One big industry running from the full force of these recent storms is insurance.

It’s been a record breaking winter for snowfall in states like Ohio, and these guys are getting slammed with different claims, mostly from homeowners that are dealing with frozen pipes – more than 14,000 claims in total – many of which are coming from people who have never made a claim in their lives.

During the brief thaw about two weeks ago, it was flooding that was damaging many homes. It’s hot, it’s cold – it’s a giant swampy mess no matter what.

The state of Ohio is facing its most expensive winter ever. The Ohio Insurance Institute says bills from just a four day period – January 5th through January 8th – are running up to $124 million, according to their local ABC news affiliate. It’s happening in other states too.

Spring is in the Air

The best part about all of this: it’s almost over! Here we are in March, and while there may be a little more snow on the horizon, the brunt of this winter is behind. And we made it!

Even though winter has been brutal, it might surprise you to know that consumer spending has been on the rise – the best since September – and it’s not just a bunch of people out there buying socks and shovels. We did it all in the face of the storm.

Consumer spending, including mortgage payments, accounts for about 70 percent of the U.S. economy. Couple that with overall incomes that are going up and we definitely have ourselves a prosperous and joyous spring to look forward to.

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