U.S. Economy Leaves Winter Behind, But Some Weakness Lingers

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Anecdotal evidence recorded by each of the 12 district Federal Reserve Banks showed Wednesday that the U.S. economy is once again pushing forward with its recovery after a tough winter. “Weather” was referenced 119 times in the last beige book report. While that is by no means excessive for a document with a word count running in the tens of thousands, its use confirms what many economic reports also indicated: Frigid temperatures caused U.S. economic recovery a great deal of harm in the early months of the year.

By comparison, “weather” was referenced an almost equal number of times in the the April edition of the beige book report, yet the report still created an anecdotal snapshot of an economy with growing forward momentum. Cold and stormy conditions did continue to dampen growth to a small degree, but Fed economists postulated that labor market numbers and further economic data from April will reveal a rebound as consumers and businesses unleash pent-up demand and hiring accelerates.

Given the anecdotal nature of the report, it is difficult to definitively say the economy noticeably improved in the past six weeks. Once again, the economic condition across the nation was mixed, although in general, the economy began showing signs of a thaw despite remaining pockets of weakness. Between early March and the middle of April, 10 of the 12 Fed bank districts reported that the regional economy expanded, a significant improvement from the eight regions that reported economic growth in the previous report. More specifically, growth was “modest or moderate” in the Boston, Philadelphia, Richmond, Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco regions. But the Fed said growth in the Chicago region merely “picked up,” and in the Cleveland and St. Louis regions, economic growth slowed.

It seems “modest to moderate growth” can cover all manner of ills and smooth out any improvements (or negative developments) that transpire between reports. The particular meaning of those adjectives can also seem a bit ambiguous, but “modest” is meant to be a touch weaker than “moderate.” According to a Wall Street Journal analysis of the Fed’s use of the two terms, “modest” economic growth has a threshold of slightly below 2 percent gross domestic product growth, “though it doesn’t seem to be an exact science.”

Even after the “Fed speak” analysis from the Journal, the question of what exactly constitutes “modest to moderate growth” fails to create a solid storyline. The point of the Fed beige book is not to be a scientific analysis of economic growth but rather an anecdotal description of economic conditions. In general, recent data indicated that a greater number of regions are experiencing steady or “moderate” growth rates than experienced slower or “modest” expansion. But in April, the Fed did not distinguish between those two levels, indication the previous six weeks saw mixed growth.

Staffers from each of the 12 regional banks compile anecdotes, rather than pure data, by conducting interviews with businesses, economists, and other financial experts via phone or through questionnaires or email, with the intention of detecting important trends in consumer spending, manufacturing, and real estate, and business investment. Each survey focuses in particular to the region’s major industries; the Atlanta Fed highlights the regions tourism, the Dallas Fed on the energy industry, and the Kansas City Fed on farming.

Recently, all regions have placed additional attention on consumer spending. Consumer spending accounts for approximately 70 percent of gross domestic product and because government and business spending have remained weak, the economy is depending even more on household spending to fuel growth.

Strong consumer spending is essential for the recovery of the American economy, and the Fed found consumer spending increased since the previous report in a majority of regions. Specifically, retailers reported that business improved from the generally weak sales recorded at the beginning of the year as customers remained home because of winter storms. And this was true across most of the districts that reported modest or moderate growth, noted the report. In particular, car sales in the final week of March were “about as good as it gets” at a dealership in the Philadelphia region, while tourism was generally positive in the Philadelphia, Richmond, Atlanta, Minneapolis, and Kansas City Districts.

The report also contained indicators of potential future growth in other sectors. In Boston, advertising and consulting were strong, especially for healthcare consulting, and San Francisco noted healthy demand in the technology industry.  Plus, transportation generally strengthened in recent weeks, with the Richmond District experienced brisk growth in container volume through ports despite winter weather disruptions; trucking increased as firms worked to catch up with weather-delayed shipments; and, Atlanta ports cited increased shipments of bulk agricultural commodities and record container volumes.

Manufacturing conditions improved noticeably across most of the country since the previous Beige Book report. And, that report, mirrored the March reading of the Fed’s industrial-production index — a measure of manufacturing, mines and utility output — that increased a seasonally adjusted 0.7 percent last month from the prior month. The Chicago and Minneapolis Districts reported moderate growth, with a pickup in new orders and production, while the San Francisco District stated that manufacturing activity appeared to gain some momentum. In the Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and Dallas Districts, lingering winter weather hampered business activity, but that impact was less severe than earlier this year.

By comparison, the housing market was the one area in which harsh winter temperatures are still effecting growth. Reports on residential housing markets varied, noted the report. Home sales in Kansas City improved since the last survey period while, in the Dallas District single-family home sales remained healthy and residential construction grew at a moderate pace in the Boston and San Francisco Districts. But New York, Philadelphia, and Atlanta reported modest growth. In the Chicago District, real-estate brokers reported that home sales fell due to cold weather, but they remained confident that activity would improve in coming months. Reports on labor market conditions were mixed but “generally positive.”

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