Thursday, May 1, 2014

Temperature and GDP

GDP grew an atrocious .1 percent last quarter. The gist of the economic reporting blames the record cold. (Global cooling?) It couldn’t possibly be failed government policies. On the Keynesian, demand-side model, consumption drives growth. In winter people spend more time indoors and spend less money buying things, which Keynesians think hurts growth.

“The U.S. economy slowed sharply in the first three months of the year as a harsh winter exacted a toll on business activity. The slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather.” –Martin Crutsinger, AP

“The harsh winter sent a chill through the U.S. economy in the first quarter as slumps in business investment and home construction stalled growth.” –Jeanna Smialek, Bloomberg

Economic growth from the last quarter of 2013 and the first quarter of 2014 was 1.35 percent, less than half the median growth of 2.8 percent since October-March 1970.

Here’s a graph of October-March temperatures and combined annualized GDP growth since 1970.

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As you can see, since 1970, there has been little to no warming. There has been a decline in GDP growth, however. October-March GDP growth topped 7 percent four times in the ’70s and ’80s. We haven’t had better than 5 percent growth since 1999.

Average October-March GDP growth during the ’70s—known for stagflation, two oil crises, and the introduction of fiat money—was 2.71 percent. Average October-March GDP growth in the decade ending in 2014 was 1.12 percent. Even removing the 2009 blip, current 10-year growth is 2 percent, still below the 45-year median.

The four best and four worst October-March periods for GDP growth occurred during moderate winters in a range of 4.0 to 5.2 degrees Celsius.

The more accurate predictor of GDP growth since 1970 is time and government encroachment on the free market, not temperature.

UPDATE (6/25): The final first-quarter growth number of -2.9 percent is a disaster. This winter was cold, but the winter of 1979-1980 was just as cold; first-quarter growth then was 1.8 percent. The economic “headwinds” the president likes to talk about aren’t natural, they’re man-made.

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