Fed: Economy expanded in most districts
The economy expanded in most regions over the past six weeks but activity slowed in some areas as the manufacturing industry continued to struggle, offsetting the recovering housing market and growth in consumer spending, the Federal Reserve said in a report Wednesday.
Its “beige book,” which offers an anecdotal snapshot of the economy, appeared to show more sluggish activity than its previous report and coincided with a sell-off in markets early this year amid weakness overseas and an oil-industry downturn.
“Most districts noted that weak demand from the energy sector was creating a significant headwind for manufacturers,” the report said.
The Fed said the economy grew moderately in its Richmond and San Francisco bank districts, and modestly in the Cleveland, Atlanta, Chicago, Minneapolis and Philadelphia areas. But the performance was “mixed” in St. Louis and Boston, flat in New York and Dallas, and down in Kansas City.
Manufacturing has been the biggest drag on growth, with China’s slowdown and weakness in the euro zone combining with a strong dollar to curtail exports, and the oil price crash pummeling orders for pipes and related products. The Boston, Cleveland, Chicago and San Francisco areas were among those reporting flat to moderate growth, while the New York, Philadelphia, Kansas City and Dallas regions were in a group recording slight to moderate declines.
The culprit was weak energy demand in areas such as Boston, Philadelphia, Chicago, Dallas and San Francisco. At the same time, the low energy costs made for cheaper production of steel products in San Francisco. The global drop in commodity prices also has hurt farmers, and a sluggish agricultural industry hit manufacturers in Chicago and Kansas City, the Fed said.
The auto and aerospace industries remained bright spots in the Cleveland and Chicago districts.
Consumer spending has been one of the economy’s strong suits and continued to advance with sales rising moderately in Philadelphia, Richmond, Atlanta and San Francisco, and modestly in Chicago. January’s big Northeast snowstorm briefly disrupted shoppers in the Philadelphia and Richmond areas, but activity bounced back.
Yet the recent market turbulence and concerns about the U.S. economy appeared to dent consumer confidence. Fed contacts in Boston, Cleveland and Chicago “noted that consumers seemed reluctant to spend, citing reluctance to add debt, financial market volatility, or economic uncertainty as significant factors limiting spending.” Separately, “some weakness” was reported in the Kansas City and Dallas areas.
Auto sales have been an economic pillar for many months and continued to show strength in areas such as Chicago, San Francisco, New York and Minneapolis. Also picking up was tourism, with the ski season shifting into a higher gear in the Philadelphia, Richmond and Minneapolis regions.
The recovering real estate market is also underpinning the economy. The Boston, Cleveland, St. Louis and San Francisco districts all reported strong growth in home sales, with mild weather bolstering activity in some areas. A number of districts are still reporting low housing supplies, including New York, Cleveland, Atlanta, St. Louis and Minneapolis. The meager inventories have curbed sales.
Residential construction “generally strengthened,” with only Philadelphia and Kansas City posting softer activity, the report said. And nonresidential sales and leasing growth was described as flat to strong.
The beige book sketched a mixed picture of employment that seemed to reflect January’s official slowdown in job growth tallied by the government. Most areas reported “modest growth in the labor market.” But conditions “were mixed in Atlanta and Dallas,” as those markets as well as San Francisco “noted decreased employment in the energy sector.”
Still, most regions “experienced slight to strong wage growth,” the report said. The Fed is looking for wage gains to accelerate as a sign that feeble inflation is poised to move up toward the Fed’s annual 2% target.