Why winter weather likely didn't impact the market volatility

Could inclement weather conditions have played a role in the volatility of the financial markets last week?

The tumultuous week from Feb. 5 to 9 was the worst for the Dow Jones Industrial Average in two years, as it experienced two drops of more than 1,000 points, including its biggest one-day point drop ever according to CNBC.

The market volatility first began after the latest jobs report was released by the Bureau of Labor Statistics on Feb. 2. The U.S. added 200,000 jobs in January, while unemployment stayed at 4.1 percent for the fourth consecutive month. About 180,000 jobs were expected to be added, according to Reuters.

The Dow closed on Friday, Feb. 9, at 24,190, which is nine percent lower than its high of 26,616 on Jan. 26, according to CNN. At one point, the market entered into a correction, or when stocks fall 10 percent from a recent high.

In early January, a large winter storm underwent bombogenesis off the U.S. East Coast, leading some to refer to it as a bomb cyclone. Record snowfall totals were reported in parts of New England along with severe coastal flooding in Boston and tens of thousands of power outages in the region.

According to an article from Business Insider, the recent volatility could have been attributed to the number of employees who miss work because of inclement weather, which would impact average weekly earnings.

Fears of inflation came about following the jobs report which also included data that showed average hourly earnings rose to an annual rate of 2.9 percent.

However, the Bureau of Labor Statistics (BLS) has cautioned in the past that weather-absence data should not be used to project or evaluate changes in payroll and employment from the Current Employment Statistics Survey, a monthly survey that counts paid employees only, as it can be misleading.

This is because it can be hard to determine whether someone worked from home, received paid time off or worked reduced hours or even extra hours.

Average weekly hours are estimated for paid time during the pay period including pay for holidays, sick leave and/or other time off.

Typically, it is not possible to quantify precisely the effect of extreme weather on payroll employment estimates, the BLS states. In order for severe weather conditions to reduce employment estimates, employees have to be off work without pay for the entire pay period.

In addition, the pay status of employees can vary from major weather events. For instance, 80 percent of non-agricultural wage and salary workers were not paid during a February 1994 snow and ice storm while 51 percent of workers were not paid during the February 2010 snowstorm known as “snowmageddon.”

Winter storms are said to result in the most weather-related work absences, in part because they affect much larger geographic areas than other types of extreme weather such as hurricanes, according to the BLS. Their wide-ranging impacts such as heavy snow, freezing rain, high winds and ice can also force many more travel and business disruptions.

While it's not likely weather played a factor in the recent market volatility, extreme weather events can still take a toll on the economy.

During the winter, snow and ice storms can negatively affect home sales, spending at restaurants and in-store shopping, but utility companies and delivery providers can see benefits, according to Bloomberg.

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