el niño could add $30 billion to u.s. economy

El Niño Could Add $30 Billion to U.S. EconomyJanuary 2016

Macroeconomic and Investment Research

2/5

El Niño Could Add $30 Billion to U.S. Economy

A strong El Niño reduces the chance of harsh winters in the U.S., according to American Meteorological Society research.

The result has historically included lower heating costs, increased consumer spending, reduced travel costs, more jobs, and less storm damage.

The powerful El Niño of 1997 boosted the U.S. economy by almost $18 billion, equivalent to 0.8% of real 4Q GDP at the time. Our projections indicate that the current El Niño could add $30 billion to the economy in 2015-2016.

Estimated El Niño Impact on U.S. ($ Billions)

Benefits 1997–1998 Inflation-Adjusted for 2015

Savings due to the absence of floods and Atlantic hurricanes 6.9 9.5

Savings from less Heating Costs 6.7 9.2

Increase in Consumer Spending 5.6 7.7

Reduce Operating Costs from Airlines and Ground Transportation 1.8 2.5

Income from Increased Construction and Employment 0.5 0.7

Savings from less Highway Snow Removal 0.4 0.5

Total Benefits 21.9 30.0

Losses 1997–1998 Inflation-Adjusted for 2015

Property Losses from El Niño related Storms 2.8 3.8

Agricultural Losses 0.7 1.0

Federal Government Relief 0.4 0.5

Lost sales from Snow Removal and Tourist Industry 0.2 0.3

State Assistance Costs 0.1 0.1

Total Losses 4.2 5.8

Net Benefits 17.7 24.3

U.S. Private Consumption Contribution to GDP (1950-Present) U.S. Population-weighted Average Temperature Deviation from Normal (1950-Present)

0.0%

0.4%

0.8%

1.2%

1.6%

0.2%

0.6%

1.0%

1.4%

T (Immediate ) T + 1st Quarter T + 2nd Quarter T + 3rd Quarter T + 4th Quarter

1982 Severity 1997 Severity 1987 Severity 1965 Severity 1972 Severity

-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year

Air Pressure Anomalies measured by Southern Oscillation Index (SOI)

Sea Surface Temperature Anomalies measured by Oceanic Nino Index (ONI)

-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5

NOAA Oceanic Niño Index (>0.5 defined as El Niño; <-0.5 defined as La Niña) NOAA Oceanic Niño Index (>0.5 defined as El Niño; <-0.5 defined as La Niña)

Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)

Mild El Niño (Avg.=1.9%)

Normal (Avg.=1.8%)

La Niña (Avg.=2.4%)

Strong El Niño (Avg.=4.1%)

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972

Consumption Capital Formation Net Exports Total GDP

0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3

Strong La Nina Mild La Nina Normal Mild El Nino Strong El Nino


Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%

El Niño Normal La Niña

11/2015

0.0%

0.4%

0.8%

1.2%

1.6%

0.2%

0.6%

1.0%

1.4%



-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year



-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)


Normal (Avg.=1.8%)



-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972


0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3



Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%


11/2015

Source: American Meteorological Society, NOAA, Haver, Bloomberg, Guggenheim Investments. Data as of 11.30.15

3/5

In the Northeast, strong El Niños reduce cold and disruptive weather and lead to better business outlook readings.

The National Oceanic and Atmospheric Administration (NOAA) predicts that this year’s El Niño will continue through the Northern Hemisphere’s winter, gradually weakening through spring 2016.

What Will El Niño Do to Weather in the U.S.?

Higher Probability of Wetter Weather

Precipitation Outlook for 12/2015-2/2016 Temperature Outlook for 12/2015-2/2016

Normal

Higher Probability of Drier Weather

Higher Probability of Colder Weather

Normal

Higher Probability of Warmer Weather

Source: Bloomberg, Haver, NOAA. Data as of 11.19.15.

Presence of El Niño and Winter Temperature Deviation from Average in NYC (1970-Present)

0.0%

0.5%

1.0%

1.5%

2.0%



-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year



-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)


Normal (Avg.=1.8%)



08/2015

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972


2Q2015

0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3



Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%

0.0%

0.5%

1.0%

1.5%

2.0%



-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year



-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)


Normal (Avg.=1.8%)



08/2015

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972


2Q2015

0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3



Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%

Presence of El Niño and Winter Temperature Deviation from Average in NYC (1970-Present) Presence of El Niño and Probability of Negative Philadelphia Fed Business Outlook Readings 3 Quarters from the Start of El Niño (1970-Present)

3/5



What El Niño Will Do to the Weather in the U.S.?


PRECIPITATION OUTLOOK FOR 12/2015-2/2016 TEMPERATURE OUTLOOK FOR 12/2015-2/2016

Normal



Normal




Presence of El Niño and Probability of Negative Philadelphia Fed Business Outlook Readings 3Qtrs. from the Start of El Niño (1970-Present)

0.0%

0.5%

1.0%

1.5%

2.0%



-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year



-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)


Normal (Avg.=1.8%)



08/2015

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972


2Q2015

0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3



Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%

0.0%

0.5%

1.0%

1.5%

2.0%



-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year



-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)


Normal (Avg.=1.8%)



08/2015

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972


2Q2015

0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3



Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%

3/5



What El Niño Will Do to the Weather in the U.S.?


PRECIPITATION OUTLOOK FOR 12/2015-2/2016 TEMPERATURE OUTLOOK FOR 12/2015-2/2016

Normal



Normal




Presence of El Niño and Probability of Negative Philadelphia Fed Business Outlook Readings 3Qtrs. from the Start of El Niño (1970-Present)

0.0%

0.5%

1.0%

1.5%

2.0%



-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year



-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)


Normal (Avg.=1.8%)



08/2015

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972


2Q2015

0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3



Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%

0.0%

0.5%

1.0%

1.5%

2.0%



-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year



-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)


Normal (Avg.=1.8%)



08/2015

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972


2Q2015

0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3



Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%

4/5

Guggenheim Investments’ Macroeconomic and Investment Research team believes that as the massive El Niño weather pattern gains strength, it should become a boon to the U.S. economy, potentially adding 1 percent to U.S. gross domestic product (GDP) in the first quarter.

Milder winters resulting from the El Niño storm pattern have historically boosted consumer spending and manufacturing activity.

El Niño’s influence on U.S. GDP should reach its peak in the storm cycle’s third quarter, which corresponds to the end of 2015 and into the first quarter of 2016.

Over the past five strongest El Niño weather events, the average total shock to U.S. real GDP growth from the start of the weather pattern to its third quarter was 1 percent, with the largest historical shock of 1.5 percent occurring in 1982.

This El Niño is among the largest in recent decades, roughly on par with the El Niño of 1997. Based on the economic impact of that episode, we estimate as high as a 1 percent boost to Q1 2016 GDP, all else equal.

How Will El Niño Impact U.S. GDP?Modeled Impact of El Niño on U.S. Real GDP Growth Since the Start of El Niño (QoQ SAAR, based on the Dallas Fed Model)

0.0%

0.4%

0.8%

1.2%

1.6%

0.2%

0.6%

1.0%

1.4%



-2.3

-1.6

-1.1

-0.9

-0.9

1.6

1.9

1.3

1.3

1.5

1982

1997

1987

1965

1972

Year



-10%

-5%

0%

5%

10%

15%

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5


Cons

umpt

ion

Cont

ribut

ion

to G

DP G

row

th (Q

oQ SA

AR)

Tem

p. D

eviat

ion

from

Nor

mal

(Fah

renh

eit)


Normal (Avg.=1.8%)



-10

-8

-6

-4

-2

0

2

4

6

8

10

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1982 1997 1987 1965 1972


0.4 0.6

-0.1

-1.5

2.6

-2

-1

0

1

2

3



Fahrenheit

62%

32% 29%

15% 13%

0%

10%

20%

30%

40%

50%

60%

70%


11/2015

Source: Federal Reserve Bank of Dallas, IMF, NOAA, Haver, Bloomberg, Guggenheim Investments. Data as of 12.31.15.

Severe El Niño Events Shock to U.S. GDP Growth (QoQ SAAR)

Year Severity Measured by SOI (Negative Indicates More Severe)

T (Immediate)

T + 1st Quarter

T + 2nd Quarter

T + 3rd Quarter

T + 4th Quarter

1982 -2.3 0.5% 0.5% 1.2% 1.5% 1.5%

1997 -1.6 0.3% 0.3% 0.8% 1.0% 1.0%

1987 -1.1 0.2% 0.2% 0.6% 0.7% 0.7%

1965 -0.9 0.2% 0.2% 0.5% 0.6% 0.6%

1972 -0.9 0.2% 0.2% 0.5% 0.6% 0.6%

Modeled Impact of El Niño on U.S. Real GDP Growth Since the Start of El Niño (QoQ SAAR, based on the Dallas Fed Model)

5/5

This material presented herein has been prepared for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This material contains opinions of the author but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.

© 2016 Guggenheim Partners, LLC. All Rights Reserved. No part of this content may be reproduced, stored, or transmitted by any means without the express written consent of Guggenheim Partners, LLC.

Guggenheim Funds Distributors is an affiliate of Guggenheim Partners, LLC. For more information, visit guggenheiminvestments.com or call 800.345.7999.

CP-ELNINO 20336

Important Notices and Disclosures

el niño could add $30 billion to u.s. economy

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