Five industries that could be hit by a cold, wet La Niña weather pattern

Retailers, utility companies and the property sector are among those that could be hit by a cold and wet weather that would result from the onset of a La Niña weather pattern, a leading economist has warned.

CommSec’s chief economist Craig James has taken a break from his usual job of tracking economic data to take a look at the potential impact of a La Niña effect on investors. A La Niña event is basically the opposite to the well-known El Niño effect – instead of hot and dry conditions, La Niña involves wet and cold conditions in eastern and northern Australia.

The chances of a La Niña effect impacting Australia are growing. Yesterday, the World Meteorological Organisation warned of moderate to strong La Niña conditions over the coming four to six months and the Bureau of Metrology says La Niña is already active in the Pacific region, and could last until early 2011.

With eastern states expecting lower-than-normal temperatures in September and higher rainfall (Brisbane had its wettest October day on Monday), there is some evidence that the La Niña event is occurring already.

James argues that’s not good for the following sectors:

• Retailers of seasonal goods – clothing, electrical goods, outdoor equipment, swimming pool operators and equipment.
• Utilities – reduced demand for power (air-conditioners, fans, etc).
• Insurance companies – potential for floods, more traffic accidents.
• Rural producers – effects will vary depending on where and when the rain falls, and in what quantities.
• Builders/construction – potential for weather delays with more frequent rain days.

Clearly, retailers who are gearing up to shift millions of dollars of “summer” stock are among those likely to be hardest hit.

“Retailers are already under pressure given that conservative consumers are reluctant to spend, so a mild, wet summer would represent an additional challenge,” James says, giving the example of Myer, which is currently offering summer clothes in its October mid-season sale.

While there is little an entrepreneur can do about the weather, James says it is a factor that shouldn’t be ignored.

“It is hard enough for investors to account for the vagaries of the economy, let alone the vagaries of the weather. And while La Niña events have predictable effects, climate models aren’t able to accurately determine whether a mild La Niña event is in prospect or something more severe.

Still, for investors it is a case of forewarned is forearmed.