Fed survey: Economy grows even as snowstorms crimp activity in some parts of the country

By Jeannine Aversa, AP
Wednesday, March 3, 2010

Economy grows, but snowstorms bite into some areas

WASHINGTON — The economy continues to grow slowly even though harsh snowstorms crimped activity in some parts of the country last month.

A new Beige Book survey by the Federal Reserve, released Wednesday, showed that the recovery is managing to plod ahead though not at a strong enough pace to persuade companies to ramp up hiring.

The Fed said that “economic conditions continued to expand … although severe snowstorms in early February held back activity” in some places.

Of the Fed’s 12 regions surveyed, 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.

Although economic setbacks from the weather are temporary, they 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 last year, 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.

Even though companies have slowed the pace of massive layoffs, they aren’t in the mood to hire. The jobs market “remained soft thoughout 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 deeper job losses for the month.

With the economy only slowly healing, 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. The rationale: super-low rates will induce Americans to boost spending, which would aid economic growth.

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 were moving up slowly until the snowstorms hit. And, tourism activity in New York City, which did pick up before the storms, did get pinched in early February because of the bad weather.

Meanwhile, manufacturing strengthened in most part of the country, especially for high-tech equipment, automobiles and metals. Demand for services also 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, although 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.

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