Retailers, construction sector tipped to suffer as La Niña wet weather pattern persists

Retailers, construction companies, utilities and insurance companies should brace for further pain from the La Niña weather pattern, which has been blamed for cool and wet conditions – and a string of natural disasters – around Australia this summer.

While many entrepreneurs had expected the La Niña pattern to finish in January or February, CommSec chief economist Craig James says the latest weather predictions suggest cold and wet conditions could extend into March and April and perhaps beyond.

The Bureau of Meteorology released its latest version of the Southern Oscillation Index – which tracks the La Niña pattern – yesterday. While the index hit an eight-week low in late January, it is now rising and stands at 20.8. Anything over an index reading of 8 suggests a La Nina weather pattern.

While the Bureau believes the La Niña patter has now peaked, the recent readings do suggest it may hang around for longer than expected.

“The most likely outcome is for a return to neutral conditions, but there is a chance of La Niña persisting for the rest of the year,” the BOM said yesterday.

Craig James, who first highlighted the potential impact of La Niña on businesses back in October, says the extension of La Niña is particularly bad news for the following sectors:

• Retailers of seasonal goods such as clothing, electrical goods, outdoor equipment and swimming pools and equipment.
• Utilities, who will see reduced demand for power for air-conditioners and fans.
• Insurance companies, who face greater potential for more floods and traffic accidents.
• Rural producers, depending on where and when the rain falls, and in what quantities.
• Construction companies, which face more lost time due to inclement weather.
• Miners, who also could see production disrupted further.

A host of retailers have reported disruptions and weaker sales due to cool weather and flooding in Queensland, including Woolworths and the Retail Food Group.

Last month, Toowoomba-based property entrepreneur Clive Berghofer told SmartCompany inclement weather had caused almost three months of lost work days last year – further weather-related disruptions could hamper rebuilding efforts in the region.

While Craig James says retail and insurance stocks could face further pressure as La Niña extends, the weather pattern will also make life hard for the Reserve Bank.

“A strong persistent La Niña event would be pose risks for the economy in a general sense, but particularly for insurance, retail, construction and mining companies,” James says.

“For the Reserve Bank, it complicates decisions on interest rates. A key concern is that higher food prices may have more persistent effects in pushing up economy-wide inflation.”