Economic indicators are mixed after heavy snow season
Thursday, March 4, 2010
Just when you thought the mess from the February snowstorms was over, it has started to obscure a clear understanding of how the economy is doing.
There has been a string of disappointing data in the last two weeks, including rising numbers of unemployment claims and hints of a new dip in the housing market. A report on the jobs market in February, due Friday, would normally help provide clarity on whether the economic recovery remains on track -- but not this month, as forecasters expect a large but uncertain loss of jobs because of the February snowstorms.
The resulting muddle has left economists struggling to parse the true underlying trend of growth -- a problem underscored by three reports released Wednesday.
The Institute for Supply Management's index of activity at non-manufacturing businesses rose sharply, to 53 points from 50.5. Numbers above 50 indicate that activity at service businesses, such as hotels, hospitals and law firms, is rising.
And a report on the job market by ADP, the payroll processing company, found that private payrolls declined by 20,000 in February. That suggests that while the job market remains weak, it is not falling off a cliff.
The conflicting signals are reflected in the Federal Reserve's "beige book," a compilation of anecdotal information from businesses around the country prepared by the Federal Reserve, also released Wednesday.
"We're in a kind of uncertain time," said Michelle Meyer, a U.S. economist at Barclays Capital. "The data is coming in mixed, but you can explain some of that because of the weather. The snow certainly confuses things."
"Economic conditions continued to expand" in late January and February, according to the beige book, which is released eight times a year. But "severe snowstorms in early February held back activity in several" Fed districts.
The details of the report suggest that even apart from the snow, the expansion has included less-than-gangbuster growth. Nine of the 12 Fed districts reported that conditions were improving, "but in most cases the increases were modest," and conditions were described as "mixed" by three of the Fed's regional banks.
Indeed, the weakest results were reported by the Federal Reserve Bank of Richmond, which encompasses an area stretching from South Carolina to Maryland, where "economic activity slackened or remained soft in most sectors, due importantly to especially severe February weather in that region."
The disappointing economic figures in recent weeks have included surprising increases in the number of new jobless claims and weak numbers on both new- and existing-home sales in January.
And while there are always unpredictable variations in economic data, some leading forecasters have downgraded their projections for overall growth in the first quarter. For example, economists at J.P. Morgan Chase said Tuesday that they expect gross domestic product to have grown at a 2.5 percent annual rate in the first three months of the year, compared with a previous estimate of 3 percent.
The beige book seemed to reflect this mixed economic picture.
"Consumer spending showed signs of improvement in many Districts since the last report but was hampered in several regions by severe weather conditions in early February," said the report, which is formulated to help Fed policymakers understand the conditions facing businesses around the country in advance of monetary policy meetings.
Activity in the tourism industry was "either rising or mixed," and service industries such as health care and information technology saw an increase in demand.
The manufacturing sector shows signs of continuing its gradual rebound. "Contacts in most Districts remained optimistic for future months, with several reports of planned increases in capital spending" in the manufacturing sector, the beige book said.
Residential real estate was mixed around the country, while commercial real estate continued to appear weak. And businesses seem disinclined to borrow money to expand, as "loan demand remained weak across the country," the report said.