It is good to see that the chill wind hasn't frozen the work produced by the economists at the consultancy CEBR.

Here is one piece of cogitation that caught my eye.

CEBR's chief economist Douglas McWilliams has done a "quick back of the envelope calculation" that suggests an additional two to three thousand businesses may fail in Q1 2009 as a result of the bad weather.

CEBR had looked at the impact of the cold weather in 1962/63 and found that while it had little net negative impact on GDP overall some sectors were hit badly, notably construction.

This piece caught my attention because just recently I was looking at the extreme effect on construction output caused by arctic conditions in 1962/63. Technically it caused a very short, but very sharp recession in the industry.

According to my calculations construction output fell by more than 14% in just two quarters. The hardest hit was housing which saw output fall by a quarter.

Here's a graph to illustrate just how extreme the fall was.

Extreme cold and construction output jan 2009.GIF

In making his guesstimate of the effects of the current bad weather, Douglas McWilliams argues that the recession will mean that the effects on productivity will be mitigated, as firms working at reduced capacity will be able to make up lost productivity in later weeks or months depending on how long the bad weather lasts.

But, he says, the recession also has a different effect. If lost productivity leads to delayed payments the combined hit on profits and cashflow could push many businesses already close to the brink over the edge.

As he points out, the effects will not hit industries equally. Many of the businesses that are close to failing are in the retail and (wait for it) construction sectors and these are likely to be most affected by the snow and transport disruption.

When things are going bad, it doesn't just rain, it...snows...