Global Economics

The Oddities of the Summer Economy


The Oddities of the Summer Economy

Photograph by Kevin Trageser/Getty Images

The summer does weird things to the economy. For one, our work and spending habits change dramatically compared with the rest of the year. As we hit the road for a summer vacation, overall output tends to dip as the number of hours worked drops and spending surges in a few areas such as gasoline, beach towels, and Cherry Coke Slurpees.

To smooth out the differences, economists apply seasonal factors to the data throughout the year, revising down for things that tend to be inflated, and up for those that sag. For example, January has the biggest upward seasonal adjustment for employment to account for all the part-time workers who are dismissed after the holiday shopping season. July has the second-biggest due to all the teachers who go off contract.

To see how the economy really changes, you have to back out of those seasonal adjustments and look at raw, unadjusted data. As we ease into summer, there are some indications that the overall economy is starting to slow from the first part of the year. Hiring has cooled off, as did consumer spending in March. With incomes relatively flat, it’s hard to see a big boost in the summer spending season. Either way, here are a few ways the economy tends to shift in the summer months.

Labor Force: The biggest impact is school-driven. Teenagers and college students flood the job market in June, while teachers typically exit in July. So while the overall labor force tends to grow only about 1 percent from May to July, it jumps 25 percent among 16- to 19-year-olds. Part-time workers take over the market. There’s also an automotive impact. Carmakers tend to shut down plants around the first week of July to retool for the coming year’s models. Depending on the length of the shutdown, this sometimes leads to a spike in jobless claims among autoworkers. It’s not that they’ve been fired, just put out of work temporarily. Still, the auto industry “wreaks havoc” in the summer jobless claims numbers, says Julia Coronado, chief economist for BNP Paribas.

Energy Prices: Overall, energy tends to assume a bigger share of our spending during the summer. Depending on how hot it gets, that could be even more pronounced this year given the warm winter, which curbed the season’s heating bills in many parts of the country. Electricity bills usually pop from June through August as air conditioners kick on. We also pour a bigger chunk of income into our cars, RVs, and boats. Gasoline prices typically increase in the summer as demand rises with the summer driving season. This year could be an exception to that rule, however. The price of gas has been declining throughout most of the U.S. for the past six weeks, with the national average down more than 20 cents since early April. Still, the Energy Information Agency predicts that summer fuel demand will hit an 11-year low in 2012. That forecast was made a month ago, and lower-than-expected gas prices should bolster demand a bit. AAA, the Florida-based nonprofit travel club, predicts Memorial Day weekend travel will rise 1.2 percent from last year.

Sectors: While the bulk of construction hiring tends to happen in spring, the sector jumps during summer in terms of the overall value put in place. Tourism also cranks up from Memorial Day to Labor Day. Annual charts of the tourism industry form a bell curve around the summer months, driven as much by international tourists as by domestic ones. According to data compiled by the Office of Travel and Tourism Industries, a division of the Department of Commerce, 22 percent of all international visits to the U.S. occur in July and August. The bell curve is even more pronounced when measuring domestic tourism, particularly for northern states. In winter, folks head south.

Philips_190
Philips is an associate editor for Bloomberg Businessweek in Washington. Follow him on Twitter @matthewaphilips.

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