USA economic activity expanded, but conditions mixed – Fed

The Federal Reserve says the economy was expanding in most of the country in January and February, helped by gains in consumer spending and home sales. In seven districts, employers reported difficulty finding skilled workers. The New York district reported that availability rates and asking rents held steady for office space, but that new office construction had weakened further.

Most Fed districts reported modest improvement in labor-market conditions. Many districts said manufacturers were also being hurt by the strong dollar and weaker global outlook.

Nonfinancial services grew slightly, and transportation activity was mixed.

Three of the districts mentioned that the 2016 financial-market turmoil has been an effective factor, to drive-in reluctance to spend, among the consumers.

Hamilton is getting people to Broadway: “Broadway theaters, on the other hand, have seen some pickup since the beginning of the year; although the January 23rd blizzard closed theaters on a usually busy day, both attendance and revenues bounced back quickly and have been running ahead of 2015 levels since”. Six Districts reported moderate to modest growth, while conditions in NY and Dallas were essentially flat.

A robust report could convince Fed officials and investors confused by the Beige Book data that the economy is strong enough to handle a mid-year rate hike.

Banking conditions were positive, as loan demand increased in most Districts.

While domestically oriented sectors appeared stable, parts of sectors with more overseas exposure have taken a hit from low commodity prices, economic slowdown overseas and the strength of the United States dollar.

Still, manufacturing alone doesn’t make for a faltering economy, and Wednesday’s decidedly optimistic report from the Fed could raise the likelihood that the central bank will boost interest rates later this month.

Manufacturing contacts in eight districts – Boston, Philadelphia, Cleveland, Chicago, St. Louis, Kansas City, Dallas and San Francisco – reported “significant headwinds” because of weak demand from energy companies.

In testimony to Congress in mid-February, Fed Chairwoman Janet Yellen did not rule out a March rate increase, but said that “foreign economic developments, in particular, pose risks to USA economic growth”.

Fed officials are looking for signs of the economy’s resilience. Excluding food and energy, inflation was up 1.7 per cent, the strongest increase since July 2014 and one that puts inflation closer to the Fed’s 2 per cent target.

Analysts weren’t entirely sure what to expect walking into Wednesday, considering the the Fed’s previous Beige Book report was released in mid-January and included information only updated through the first few days of the month.