The Snows of 2010: A Heavy Weight on the Economy
The cold, snowy winds aren't merely inconvenient. They come just as some businesses and municipalities were beginning to dig themselves out from the recession. Sure some businesses like ski resorts, sellers of snow blowers and shovels, or companies that have mastered the art of telecommuting are doing a victory dance.
The Costs Are Piling Up
But in places like Maryland, which has spent much of its $60 million budget for snow removal (or Pennsylvania, which has spent $131.9 million of its $245 million budget for the entire winter; or New York City, where there was a debate about whether one inch of snow equals a $1 million drain on the city's budget), the economic tab piles up. And the winter follies are far from over.
The costs hit in many ways. The increase in demand for warmth means consumers will pay more for heating oil and gasoline. Unseasonably cold weather in Florida is already bringing higher produce prices to supermarkets. Retailers that managed to have a decent holiday season have seen shopping slow as people huddle in their homes. With consumer spending a huge part of GDP, less shopping could no doubt shape the economic story for the first quarter of 2010.
"The storms will distort the unemployment data as everyone who works hourly and could not show up for work during the week lost wages, and did not show up on the payroll survey, as this was the week that the survey was taken," says Diane Swonk, chief economist with Mesirow Financial. Conversely, unemployment claims could fall because many claims in the affected areas couldn't be processed last week.
Most of those distortions, however, will be made up as people return to work in March. "We should also see some catch-up in retail spending and spending at restaurants," later in February, says Swonk. On net, she says, "We will probably lose 0.3% from real GDP growth during the quarter, maybe a bit more depending on lost productivity. The disproportionate losses will be felt in travel and entertainment."
"A Tremendous Disruption"
But for small businesses, the pain will be particularly sharp. Charles O'Donnell, an attorney in Falls Church, Va., says in preparation and anticipation of the storms last week, all appointments were canceled and to the extent possible rescheduled. Trials that were set for months were rescheduled. It was a week of closing early, opening late and not being open at all.
"There was a tremendous disruption in moving cases forward, lost time on otherwise-priority matters to accommodate significant rescheduling and coordinating matters," says O'Donnell. Each of his support staff wanted to work during the blizzard, but they were able to handle only a few matters remotely during the height of the back-to-back storms. "The hub of our sensitive information and communications was locked behind office doors that were inaccessible via snow-packed roads and near white-out conditions," says O'Donnell.
He estimates losses of anywhere from $18,000 to $22,000. How will he make it up? "It's a cycle. We need more man-hours on deck to work the backup to stay afloat. But those extra hours draw further on HR costs and building operations."
"We Have to Make Up for Lost Time"
Mike Zippelli, CEO of Classic Brands, a manufacturer of memory foam and latex mattresses in Jessup, Md., says shutting down for two days and closing early on a third cost the company a third of its budget. "Production shut down, so there is nothing to ship customers," says Zippelli. "We lost five shipping days at the start of the month. Because our retailers were closed, our inbound sales are down significantly. The storm created a huge loss for our customers [retailers] and a huge loss for us."
Recovery will be slow, he says. "On the manufacturing side, we have to make up for lost time and produce more products. It will take the consumer time to get back in their rhythm and go out to shop. I don't believe this will happen for a while. Even the small things, like no parking at the malls and supermarkets are a hassle. People don't want to deal with that," says Zippelli.
Business in winter is dependent on weather. "Traditionally, it's a good time to buy home furnishings because consumers aren't distracted by gardening. But this storm really set us back."
"The Economic Impact Is Simple"
Lenny Kharitonov, president of Unlimited Furniture Group in Brooklyn, N.Y., also has locations in Maryland, Illinois, New Jersey and Massachusetts. The snow in Washington, D.C., and the New York metropolitan areas closed many of his stores. In Washington, he was shut down for nearly a full week.
"This is a total loss for us since the potential sales from the closed days will not be reflected during the following weeks," says Kharitonov. "The economic impact is simple. The landlord and utilities, as well as vendors still expect to receive payment on time. So if you're running your business on a bill-to-bill basis, you're in trouble. The best lesson is to be prepared and have enough cash/capital to survive a period of zero sales for at least a month."
Adds Kharitonov: "The sales will not be made up. For example, if we average $5 in sales every week, then you could reasonably expect that those who did not buy during the blizzard would come back the following week, and we will have $10 in sales. This is not the case. It's similar to food. Either you bought food before, or you didn't, since after the blizzard you will not consume any additional food to make up for what you have missed."
"Mother Nature Always Wins"
Joanne Rich, co-owner of the Inn at Huntingfield Creek in Rock Hall, Md., is counting her losses -- at least $4,000 for the inn and the coffeeshop. The inn was virtually inaccessible, and bookings had to be canceled, including an annual family gathering (a full-inn booking) as well as Valentine's weekend, which would have been sold out. "We had to spend far more man-hours for snow removal and cleanup. Labor cost about 40% more than usual," says Rich. "We are at the mercy of the weather. With any luck, guests who canceled will rebook for a different date."
Then there's Pam Pasquariello, co-owner of Pasquariello's Auto Shop in Northampton, Penn. She learned early on to prepare by investing in her own plow to save the expense of paying someone else, and she hustled to get customers' cars done before the storm hit.
Still, the shop had to close for two days. Pasquariello lost revenue, incurred additional expenses for six hours of plowing and postponed appointments, which caused a backup such that she had to turn away new customers until the shop caught up. That meant paying employees overtime and working extra hours herself.
With some frustration Pasquariello says: "Mother Nature always wins." No one will argue with that this winter.