Forecasting Economics

The weather and economy are inextricably entwined.

People have been trying to predict the weather for millennia and have been using science to do so for the last 150 years. When Admiral FitzRoy set up what was to become the Met Office in the 1860’s, it was primarily in response to the shocking loss of life in British waters; 7,402 ships were wrecked off the coasts with a loss of 7,201 lives between 1855 and 1860 alone.

What started as little more than an advance warning system where harbours were informed by telegraph that a storm was on the way, is now the governmentbacked Met Office, costing £80m annually and employing over 1,500 people.

It’s not just about whether to bring an umbrella with you when you leave the house. Back in the 1860’s, fisherman had their lives saved by advanced storm warnings, and farmers could decide whether to hold of on planting crops. Fairs, fetes and markets would be scheduled around them. That impact on businesses and trade continues today, in a much more pronounced fashion.

Accurately predicting the weather is now big business, with companies like CSIRO working with private clients in different sectors. The aviation and marine industries are two of the biggest that need access to this data, with adverse weather conditions adding time and cost to trips.

Utilities companies are also keenly interested in the weather, and climate in general. Accurate information allows them to know what energy will de demanded on a particular day. If it’s cold, there will be demand for lots of gas for the fire and central heating, if it’s hot then electricity for the air conditioning.

Then of course there is trade. The weather has a huge impact on business; in the UK a difference of 1°C usually has a 1% impact on sales. With a retail sector worth around £300bn, this 1% is equal to £3bn. Clearly the weather is worth paying attention to. Sunny conditions make people more likely to part with their cash, and clothes, drinks and garden tools are all impacted by even small increases in temperature.

In the UK, supermarkets are of course in on the act. Sainsburys knows that frost causes an increase in sales of bird seed, milk and soup. When the temperature goes up in spring, they know that hair removal items will increase in sales by 1400%, and BBQ sales will go up by 200%. Tesco has data showing that when the temperature outside is between 20 – 24°C, sales of hamburgers will go up by 42%. Without this predictive information, they might find the shelves bare when people came to buy, or food rotting in warehouses if they ordered too early.

The weather even has an impact on marketing the goods. Did you know that on overcast, gloomy days, a negative advert is likely to perform better? Soup sales go up on cold days, and the companies know it – they will look to advertise their product at the best time and will include information gathered from sales trends and impacts of the weather.

The Weather Channel was set up in 1982, and now operates as the Weather Company. They are very successfully monetizing the weather. With years of climate data cross-referenced against sales trends in hundreds of categories, they are very good at spotting patterns and selling information to those that will profit from those patterns.

When it comes to construction, unplanned for weather can mean costly delays. Different weather variables will impact whether different construction activities can be carried out. Paul Lavelle, Director of Foran Construction, says; “Weather definitely affects us. As a company we are primarily involved in excavating and groundworks, two things that are massively impacted by the climate. We want to get as much advance notice as possible and check the forecasts one to two weeks in advance to plan our operations, and even on the day as well.” If it’s cold enough, mortar can lose its strength, and concrete can freeze before it sets. Too hot and it’s the same problem due to moisture being pulled out of the concrete, which is why construction companies like Foran, measure the temperature on an hour by hour basis with thermometers on site. If there is too much rain or snow, the amount of extra water will affect the water/cement ratio and affect the strength of the cement.

Clearly, in the UK especially, cold and wet weather can cause long and costly halts to developments. Strong winds are probably the most problematic, causing problems in nearly all aspects – formwork, scaffolding, steelworks, painting and so on. “It [adverse weather] can affect our productivity and really slow down operations. Often, we can be prevented from carrying out work and can lose days in the winter and the wet months. The biggest impactor for us is the rain”; says Paul. Wind, heat and fog also carry with them a health and safety risk for operatives.

How is this being impacted by climate change?

The Intergovernmental Panel on Climate Change (IPCC) reports that “a changing climate leads to changes in the frequency, intensity, spatial extent, duration and timing of extreme weather and climate events, and can result in unprecedented extreme weather and climate events.”

Large fires are up to five times more common, and life-threatening storms are affecting more people, more often; 2018 was 2°C hotter than average according to the UK Met office. The cold snap in early 2018 cost the UK economy around £1bn a day, and impacted GDP. The construction industry, unsurprisingly, was also affected; compared with February 2017, construction output fell 3.0%; the biggest month-on-year fall since March 2013 according to the ONS.

So, what is a civil engineer to do? Looking at climate trends as well as short term forecasting is a method gaining popularity, but the occurrence of sudden, extreme weather events are by their nature, inherently unpredictable. Short of battening down the hatches and hoping for the best, careful reading of contracts will be helpful, although not very useful in the short term.

According to Laughlan Steer of Silver Shemmings Ash, one of the best methods of combatting climate change is Carbon Capture and Storage (CCS), which has the potential to remove up to 90% of carbon emissions arising from conventional power generation. The UK seems reluctant to take part, having neither carrot nor stick to encourage them to participate. However, virtue might be its own reward, with CSS by-products including “fuels, chemicals and building materials. It is therefore hoped that these additional revenue streams will provide further incentives to participate in this vital activity.”

The UK will not be hit as hard as other nations by climate change, and dramatic events like heavy snowfall and freezing temperatures, may be offset by long, hot and dry summers causing little impact to the yearly bottom line of most businesses. Checking long-term trends and short-term forecasting can hopefully help businesses mitigate the impact of the weather and perhaps even come out on top!

Laura Watkins