Suffice it to say that the first couple months of the New Year have not exactly gotten off to a rousing economic start.

 

Let’s consider the evidence. First, there’s the performance of the markets, always a good place to start. The Dow Jones fell hard during the first month of the New Year, losing about 1,200 points between its December 31st peak of about 16,600, and February 3rd when it closed at less than 15,400.

 

Driving the markets lower was a spate of reports all showing economic weakening – declining demand for manufactured goods and lower car sales to consumers among others. Adding to the January gloom was the fact that the Chinese economy is also slowing down. Since China has become such a huge buyer of commodities from around the world that it funnels through its factories, this economic slide has also meant trouble for many of the emerging markets. This is especially true of those countries that are highly dependent on sales of commodities to China and other industrialized countries.

 

The transition from former Federal Reserve Chairman Ben Bernanke to current Chair Janet Yellen probably also caused some concern in the markets. While Ms. Yellen has been careful to project a sense of continuity with Bernanke’s policies, the markets nevertheless feared that a recovering economy would inevitably lead to higher rates and further reductions in “Quantitative Easing,” both of which would hurt stock market valuations.

 

But the gloomy February has given way to a slightly cheerier (if no less frigid) February. Let’s go back to the markets. That nasty swoon didn’t last very long. We may not be back in record territory, but last Friday’s (Feb. 28) close of 16,321.71 is not far off the mark.

 

Driving the markets back up were a host of factors including the continued resilience of the housing sector, retail sales gains and, ironically, the prospect that a weakening economy would cause Federal Reserve Chair Janet Yellen to hold off on any policy changes that might hurt the markets.

 

So where are we headed now and what do we make of the rollercoaster start to 2014? There is no  question that the severe winter weather that is still making life miserable for much of the eastern half of the U.S. has hurt the economy. Construction has been difficult if not impossible in these severe conditions. Repeated closures of schools, government offices, and private-sector employers due to the snow and cold have all taken a toll and hurt output and growth.

 

But it’s also true that, correcting for these extreme weather conditions, the underlying recovery seems to be soldiering on relatively well. Or, at least, that’s what the markets appear not to have believed in January, and now believe again in February. The cold and snow can’t last forever. We will see what things look like in a month, but there’s reason to hope that it’s the Polar Vortex, and not the economic recovery, that will be behind us.