Public Release: 

Record winter weather caused major economic impacts in the U.S.

University of Illinois at Urbana-Champaign

CHAMPAIGN, Ill. -- Unusual weather across most of the United States last winter created huge and generally positive impacts to the nation's struggling economy.

Nationally, an estimated $21 billion in benefits included lower heating costs, a reduction in snow-removal costs, increased construction income, reduced transportation costs, fewer insurance losses and increased retail sales. Most of the $0.5 billion in losses were realized by the tourism industry and by decreases in sales of snow-related equipment and winter clothing.

"The unseasonably warm, dry and sunny winter weather led to profound effects on the nation's economy at a critical time," said Stanley Changnon, chief emeritus of the Illinois State Water Survey and a professor of geography at the University of Illinois at Urbana-Champaign. "Several economists reported that the weather was a major factor in keeping the United States from falling into a major recession."

Commissioned by the National Oceanic and Atmospheric Administration to assess the economic impacts resulting from the record warm and snow-free winter, Changnon and his son, David, a professor of geography at Northern Illinois University in DeKalb, interviewed numerous business experts and examined various government and private reports. A paper based on their final report has been submitted to the Bulletin of the American Meteorological Society.

"The November 2001 to January 2002 period was the warmest on record since 1895, being 4.3 degrees Fahrenheit above the national long-term average," Changnon said. "The near record warmth in the northern portions of the nation substantially reduced heating costs, adding more than $7 billion to disposable income."

With less demand, natural gas prices also fell significantly during the winter, further benefiting the average consumer. In the Chicago metropolitan area, for example, consumers saved an estimated $1 billion from lower heating costs.

The lack of snow in most areas greatly reduced governmental costs for snow removal on streets and highways. Federal, state and local highway departments reported reductions of up to 80 percent in the cost of snow removal and salting, valued at $750 million nationally.

"For example, the Illinois Highway Department normally spends $49 million on these activities, but spent only $15 million last winter," Changnon said. "Those in the private sector who provide services to remove snow were hurt by the lack of business, however, suffering an estimated loss of $40 million nationally."

The construction industry was another big winner. "The warm and dry weather allowed record-setting levels of home construction," Changnon said. "Housing starts jumped 6.3 percent in January to a seasonally adjusted rate of 1.68 million units - the highest level in two years - and in February, housing starts reached their highest level since 1948."

Part of the construction bonanza was due to the ground not being frozen in the northern United States, Changnon said. The increase in winter construction represented an additional $2.1 billion income to the industry.

The nation's transportation sector also benefited greatly from the mild, mostly storm-free winter. Airlines, trucking firms and railroads suffered fewer delays, and the reduced fuel and operating costs were valued at $255 million.

"The lack of severe storms also reduced property losses by $3.8 billion, which was a boon to homeowners and the insurance industry," Changnon said. "Only one weather related catastrophe occurred - a major ice storm from Oklahoma to Ohio - which caused losses of $265 million. Reduced losses from a lack of snowmelt floods amounted to an additional savings of $1.3 billion for the industry and the government."

The pleasant winter weather led to positive impacts on retail sales, as well. Spending by consumers, which accounts for two-thirds of all economic activity in the United States, increased by 0.5 percent in January, and then climbed 0.6 percent higher in February.

"Retail sales of goods, automobiles and homes were much above normal, representing expenditures ranging from $4.5 billion to $5.3 billion above average," Changnon said. "But sales of snow-related equipment and winter clothing were down, a loss of $80 million to $90 million." While some impacts are almost totally attributable to weather conditions, others are less direct, resulting from the weather and a mix of other economic factors, Changnon said. Such factors include lower mortgage and interest rates, federal tax cuts, the Enron collapse and the disastrous events on Sept. 11.

"The more direct impacts of last winter include the costs of heating, reductions in transportation delays, lower highway maintenance costs, and reduced insurance losses," Changnon said. "The more indirect impacts include retail sales, home sales and tourism."

Impacts of the mild winter on the tourism industry were mixed, Changnon said. Ski resorts in the Northeast and Midwest suffered major losses, but resorts in parts of the central and northern Rockies had enough snow and experienced normal business. The unusually mild weather caused many vacationers to stay home and go biking, hiking and golfing. Some parts of the tourism industry won, but many sectors lost, resulting in a net national loss estimated at between $200 million and $270 million.

"The economic impacts of the recent extreme winter conditions may be indicative of the outcomes in future winters," Changnon said. "Our analysis suggests that a future climate with warmer winters in the United States - as postulated under many global warming models - would have a positive economic outcome."


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