Is El Niño raining on your small business parade?

The United States is currently experiencing what’s known as an El Niño weather pattern, which experts predict will last well into spring. When we think of El Niño, we often conjure up images of unpredictable weather, like 60-degree Christmases or unrelenting Southwest rains.

However, there is more to the story than incongruous forecasts: El Niño weather events also generate a significant economic impact worldwide. From surges in umbrella purchases to the abrupt sale of a ski resort, El Niño’s fiscal impact can be more random than a rain shower in Phoenix.

What exactly is El Niño?

The term “El Niño” refers to the Christ Child in Spanish, and was originally coined in the 1600s by fishermen working off the coast of South America. Generally, El Niños occur due to temporary and periodic warming of sea surface temperatures in the equatorial Pacific, an area spanning thousands of miles into the central Pacific Ocean.

Based on weather data, the phenomenon occurs every two to seven years and creates any of the following weather patterns in the United States:

• Increased rain activity in the southern part of the country, from California to the Carolinas
• Notable dryness in the Ohio Valley, Great Lakes, Pacific Northwest, and Northern Rockies
• Cooler average temperatures around the Gulf of Mexico and in the Southern Plains and Desert Southwest
• Warmer average temperatures across the Northeast, Pacific Northwest, and Northern Plains

Good for business…

There are a number of businesses thanking their lucky stars for the onset of El Niño this year, as the unusual weather patterns invariably cause unusual commercial spending habits. For instance, pest-control company Orkin, Inc. reports a higher than average number of service calls concerning mosquitos, ants, and flies, particularly in areas not usually prone to pest activity in winter months.

Similarly, outdoor restaurants—which typically batten down the hatches by Labor Day—are seeing an extended period of warmer weather, allowing for increased sales and greater profits than in typical years.

….and, not so good

On a more macro level, El Niño presents a significant impact on agricultural trends, especially within the highly volatile commodities markets. According to experts, El Niño disruptions to livestock, crops, and other important commodities can cost the global economy billions of dollars. Moreover, it can take several years for producers to fully recover, just in time to do it again.

According to a climate-change specialist associated with the Asian Development Bank, “[t]he impact is likely to be high, affecting energy, food and water in many parts of Asia…” This will, in turn, impact food and energy prices in the United States. In 1998, El Niño is estimated to have caused nearly $45 billion in losses to the global agriculture market, particularly in the following areas:

• Changes in water temperatures lead to fish migration, making traditional catches difficult or impossible
• Diminished poultry and livestock feed
• Loss of crops due to heavy rains
• Sharp increases in grain prices

Aside from agriculture, American industries dependent on sub-freezing winter weather face difficulties from El Niño. According to one ski industry expert, resorts in Vermont, West Virginia, and Ontario are seeing unprecedented warm winter temperatures, making snow production difficult.

Overall, the global economic impact of the current El Niño has yet to be fully measured, as the oceanic temperatures are expected to remain warmer than usual for the next several months. During that time, it will be interesting to note how global economies react to the dramatic shift in weather patterns, and if areas like the Pacific Northwest or New England truly experience warmer, wetter winters.

At the micro economic level, smart small businesses will want to evaluate the effects of this year’s El Niño on their bottom line—good or bad—and plan accordingly for the next time this weather phenomenon comes around.