Snow puts chill on economic growth
WASHINGTON — The economy is growing slowly, but snowstorms crimped activity along the East Coast last month, according to a Federal Reserve report.
The Fed’s Beige Book survey, released Wednesday, showed that the nation’s recovery is managing to plod ahead though not at a strong enough pace to persuade companies to ramp up hiring. The Fed said “economic conditions continued to expand … although severe snowstorms in early February held back activity.”
Of the Fed’s 12 regions surveyed, nine showed improvement. The Richmond district, which includes Maryland, Virginia and the Carolinas, was hurt the most by the bad winter. That region reported economic activity had “slackened or remained soft across most sectors” because of the weather.
The economic setbacks from the weather come at a fragile time: The economy is struggling to recover from the worst and longest recession since the 1930s.
After a big growth spurt at the end of 2009, many economists believe the recovery lost steam in the first three months of this year. They predict it will grow at a pace of around 3 percent from January to March. That won’t be fast enough to drive down the unemployment rate, now at 9.7 percent.
The jobs market “remained soft throughout the nation,” the Fed reported.
When the government releases its new employment report on Friday, analysts expect it will show that the unemployment rate nudged up to 9.8 percent in February as companies slashed 50,000 jobs. The snowstorms, however, could lead to much steeper job losses for the month.
Federal Reserve Chairman Ben Bernanke told Congress last week that record-low interest rates are still needed to support economic activity. The Fed has held its key rate near zero for more than a year, and is expected to keep it there at its next meeting on March 16. The rationale: Super-low rates will induce Americans to boost spending, which would aid economic growth.
“The country is not living out a post-recession, post-crisis story. … We’re in an early chapter of the story, and the ending is uncertain — quite uncertain,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said during a speech in New York on Wednesday.
On Wall Street, stocks lost strength after the Federal Reserve report, and were mixed in recent trading.
The Fed’s survey said that consumer spending did show signs of improvements in many parts of the country. However, retailers in the Richmond region said sales were hurt by last month’s snowstorms. Merchants in the Philadelphia region said sales had been improving before the snowstorms hit. And, tourism activity in New York City, which did pick up before the storms, also got pinched in early February because of the bad weather.
Meanwhile, manufacturing strengthened in most parts of the country, especially for high-tech equipment, automobiles and metals. Factories in the Philadelphia and Richmond regions, though, noted production delays due to the snowstorms. Some were able to make up the losses by having people work longer hours and extended shifts.
Demand for services was generally positive, particularly for health care and information technology firms.
A separate report out Wednesday said that the service sector in February logged its fastest growth in more than two year, though jobs remained elusive. The Institute for Supply Management’s index rose to 53 in February, from 50.5 in January. Any level above 50 signals growth.
Bad weather hampered home sales and construction in regions including New York, Philadelphia and Atlanta. And, it was blamed for some of the sluggishness in car sales in some places.
Given the precarious state of the economy, Americans had little appetite to take out new loans, and most banks are still cautious about lending, the Fed report said. Lending is not back to normal, another reason why the recovery is expected to be only gradual.
“Economic activity is getting better — in fits and starts,” observed Jennifer Lee, senior economist at BMO Capital Markets.
The survey, known as the Beige Book, is based on information collected by the Fed’s 12 regional banks on or before Feb. 22. The report gives the Fed a way to keep its pulse on local economic conditions. It will figure into discussions when Bernanke and his colleagues meet later this month to gauge how long record-low rates will be needed to nurture the recovery.
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