The Federal Reserve stated that the economy in most areas progressed last month even as harsh winter weather slowed hiring, disturbed supply chains and kept clients away from stores and auto dealerships.
Eight of the Fed’s 12 districts “reported improved levels of activity, but in most scenarios the hikes were characterized as modest to moderate,” the Fed stated today in its Beige Book business survey. The New York and Philadelphia districts reported pullbacks that were “mostly attributed to the unusually severe weather experienced in those regions.”
Federal Reserve Chairman Janet Yellen and her policy-making colleagues are attempting to know whether latest economic weakness stems from harsh winter weather or basic problems to development. The Beige Book will be among reports reviewed by the Federal Open Market Committee on March 18-19 during its first meeting led by Yellen since she succeeded Ben S. Bernanke last month.
The Beige Book report from all 12 Fed district banks may aid policy makers finalize whether to continue this month with another $10 billion trim to bond purchases by the Fed, slashing down the monthly pace of purchasing to $55 billion. Three rounds of so-called quantitative easing have pushed up the central bank’s balance sheet to a record $4.16 trillion.
“This has some value precisely because it provides more anecdotal evidence, a more concrete rationale, in support of the slowdown being weather-induced,” said Eric Green, a former New York Fed economist who is now the global head of rates, FX and commodity research at TD Securities in New York. As winter ends, “you would be expecting to see growth bounce higher and I think job growth could also bounce higher.”
Positive Outlook
Today’s Beige Book, according on the information gathered before February 24 and gathered by the Atlanta Fed, said “the outlook among most districts remained optimistic.”
Much of the economic weakness was connected to weather, according to the Beige Book. Retail sales “weakened” for most parts of the country “as extreme winter weather limited activity,” and “weather was also cited as a contributing factor to softer auto sales in many districts.”
Snow and frigid temperatures also “disrupted supply chains and delayed shipments” in several Fed districts and had “a downbeat effect on sales and production” at manufacturers. Contacts in most Fed districts were “optimistic about the future and expect manufacturing activity to bolster in the coming months.”
Hotel Bookings
On the upbeat note, the harsh winter “benefited many ski resorts,” and most districts had “an optimistic outlook” for hotel bookings for the rest of the year.
Even a hiring slowdown was connected to the weather. Reports from Boston, Chicago and Richmond stated that weather caused “at least part of the recent slowdown.”
The Labor Department reported weaker-than-projected payroll development in December and January and will possibly report on March 7 that the economy bolstered 150,000 jobs last month, according to the median estimate in a Bloomberg survey of economists. A private report on payrolls showed today that companies in February added fewer workers than projected.
“Unseasonably cold weather has played some role,” Yellen said in reply to a question during February 27 testimony to a Senate committee. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”
