The weather continues to inhibit every aspect of life — especially in the Northeast. Since the snow is cutting back on the days available to work and produce mortgages in February, it is presenting a risk to the prepayments and mortgage-backed security production, according to a recent report from Bank of America Merrill Lynch (BAC).  

February naturally already falls in at the low end for monthly day counts, but that in compilation with this week’s snowstorm, President’s Day weekend and another winter storm in the forecast, puts this month even lower in count.    

BofAML explained that it now looks like the risk to its February forecast for prepayment rates is to the downside, and it now has to consider that activity will get pushed out to March.

And it may not end there.

“Given some of the momentum effects observed with economic activity such as refinancing, we also need to consider the possibility that the weather-driven hit to momentum means downside risks may last longer than just in February,” the report stated.

However, it is not bad news for everyone. BofAML noted that it may be good news for MBS IO investors, who benefit on a levered basis from each month of slower than expected prepayments.  

While it is hard to capture the full impact of the weather on the economy since every state deals with problems differently, the numbers show that after this week’s weak retail sales number for January that 1Q14 GDP growth is tracking at 1.4%, down from the 2.2% tracking figure for 4Q13.

“Our economists indicate we may not get a clean reading on the economy until March data are released in April. Note the words “may not.” In other words, it could take longer to get a clean reading. Nonetheless, they forecast weak growth of 2.0% in 1Q14 and a strong rebound to 3.3% in 2Q14,” the report added.

But not every part of the economy was fully affected the bad weather.

According to the Reuters/University of Michigan's, the consumer sentiment index improved the last two weeks of January, to a final January reading of 81.2 versus 80.4 at mid-month, but ended up a little bit short of December's final reading of 82.5.

“Although the unusually bad weather appears to have hit US employment, retail sales and industrial production, it hasn’t taken a major toll on consumer sentiment,” Capital Economic said.

“But the truth is that confidence has not been a reliable predictor of consumption for some years now, so this really doesn’t offer much comfort. We would place more weight on the trends in job and income growth. Once you strip out the effects of the bad weather, they remain fairly good,” continued Capital Economic. 

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