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Clearing the Fog: The Predictive Power of Weather for Employment Reports and their Asset Price Responses

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  • Daniel J. Wilson

Abstract

This paper exploits vast granular data – with over one million county-month observations – to estimate a dynamic panel data model of weather’s local employment effects. The fitted county model is then aggregated and used to generate in-sample and rolling out-of-sample (“nowcast”) estimates of the weather effect on national monthly employment. These nowcasts, which use only employment and weather data available prior to a given employment report, are significantly predictive not only of the surprise component of employment reports but also of stock and bond market returns on the days of employment reports.

Suggested Citation

  • Daniel J. Wilson, 2017. "Clearing the Fog: The Predictive Power of Weather for Employment Reports and their Asset Price Responses," Working Paper Series 2017-13, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2017-13
    DOI: 10.24148/wp2017-13
    Note: The first version of this paper was published June 14, 2017.
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    References listed on IDEAS

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    1. David Hirshleifer & Tyler Shumway, 2003. "Good Day Sunshine: Stock Returns and the Weather," Journal of Finance, American Finance Association, vol. 58(3), pages 1009-1032, June.
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    3. Marie Connolly, 2008. "Here Comes the Rain Again: Weather and the Intertemporal Substitution of Leisure," Journal of Labor Economics, University of Chicago Press, vol. 26(1), pages 73-100.
    4. Olivier Deschênes & Michael Greenstone, 2007. "The Economic Impacts of Climate Change: Evidence from Agricultural Output and Random Fluctuations in Weather," American Economic Review, American Economic Association, vol. 97(1), pages 354-385, March.
    5. Tatyana Deryugina & Solomon M. Hsiang, 2014. "Does the Environment Still Matter? Daily Temperature and Income in the United States," NBER Working Papers 20750, National Bureau of Economic Research, Inc.
    6. John H. Boyd & Jian Hu & Ravi Jagannathan, 2005. "The Stock Market's Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks," Journal of Finance, American Finance Association, vol. 60(2), pages 649-672, April.
    7. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    8. Duncan Sheppard Gilchrist & Emily Glassberg Sands, 2016. "Something to Talk About: Social Spillovers in Movie Consumption," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1339-1382.
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    Cited by:

    1. Mary C. Daly, 2021. "Climate Risk and the Fed: Preparing for an Uncertain Certainty," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2021(17), pages 1-08, June.
    2. Thibaut Duprey & Soojin Jo & Geneviève Vallée, 2024. "Let’s Get Physical: Impacts of Climate Change Physical Risks on Provincial Employment," Staff Working Papers 24-32, Bank of Canada.
    3. Daniel J. Wilson, 2021. "Where Is the U.S. COVID-19 Pandemic Headed?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2021(11), pages 01-06, April.
    4. Bo Liu & Barry T. Hirsch, 2021. "Winter weather and work hours: Heterogeneous effects and regional adaptation," Contemporary Economic Policy, Western Economic Association International, vol. 39(4), pages 867-881, October.
    5. Makridis, Christos A. & Schloetzer, Jason D., 2023. "Extreme local temperatures lower expressed sentiment about U.S. economic conditions with implications for the stock returns of local firms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    6. Shihan Xie & Victoria Wenxin Xie & Xu Zhang, 2024. "Extreme Weather and Low-Income Household Finance: Evidence from Payday Loans," Staff Working Papers 24-1, Bank of Canada.

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    More about this item

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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