How Mother Nature Trumps Rising Gas Prices

A mild winter is easing the pain of high gas prices


Everybody's watching gas prices as they flirt with the dreaded $4 per gallon threshold and threaten to disrupt a modest economic recovery.

The mild winter, by comparison, has few economists or pundits chattering. Yet the balmy weather—the fourth warmest winter in more than 100 years­­­­—may end up offsetting all the damage caused by costly gasoline, and then some.

[Warm Winter May Have Cooked Economic Data]

Rising gas prices, of course, have been a big story over the past few weeks, with pump prices up about 50 cents this year, to an average of about $3.85 per gallon. Most consumers have little choice but to fork over the extra cash, which is like an unexpected tax that reduces the amount of money people have to spend on other things.

The presidential campaign adds to the drama, with Republican candidates hollering every time pump prices rise by a penny and accusing President Obama of infringing on Americans' "right to drive." Every candidate has a plan to drill for more oil, bomb Iran and return America to the golden days of $3 gas. Or $2.50, if you're Newt Gingrich.

But Americans aren't as upset about the prospect of $4 gas as they've been in the past. Consumer confidence, for example, has continued to rise modestly, despite higher gas prices. One likely reason: People's overall energy bills have been lower, easing the pain they feel from costlier gasoline.

[See why high gas prices may help Obama.]

The mild winter in most parts of the United States obviously means that most people's heating costs are lower. In January, for example, residential consumers spent about $25 billion less on natural gas and electricity than they did a year earlier. They spent about $13 billion more on gasoline, but total spending on all three forms of energy was still down by $12 billion. February numbers will probably be similar.

"If gas prices weren't going up as much, people would be doing better," says economist Chris Christopher of forecasting firm IHS Global Insight. "But warmer weather has helped them out."

There are other benefits of a warm winter. Fewer snowstorms keeps fewer people home from work, with less disruption of normal activity. Warmer weather lures people out to go shopping. Municipalities spend less taxpayer money on salt and snow removal.

Some people, of course, are hurt by a mild winter, such as snowplow drivers and ski resort employees. But overall, warm weather seems to foster a benign economy and buoy consumer attitudes.

[See why the economic recovery might be real this time.]

It's hard to quantify the direct impact on the economy, but car sales, as one example, have been robust over the last couple of months, despite higher gas prices, which often depress auto sales. Warm weather may have generated more residential construction than would have taken place in a colder climate. That, in turn, would boost sales of building materials.

Some of that activity would have happened anyway, with warm weather merely accelerating it by a few months. But other types of warm-winter spending may genuinely boost the overall economy. If mild weather draws more diners to restaurants in the middle of winter, for example, they may still go out in the spring and summer.

Gas prices could still wreck the economy if they get high enough to produce the kind of psychological shock that sends consumers back into their bunkers. And favorable weather is one economic advantage that could end abruptly with a freak hurricane, massive flood or steamy summer heat wave.

Will it happen? Who knows. Even economists aren't foolish enough to try to predict the weather.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback to Success, to be published in May. Follow him on Twitter: @rickjnewman