Economy rebounding despite winter storms

The economic snapshot known as the Beige Book was released Wednesday and based on its contents, we shouldn’t expect any surprises at this month’s Federal Open Market Committee meeting. The Beige Book is used to gauge the health of the economy with on the ground reports from Federal Reserve contacts — banks and businesses — throughout all 12 Federal Reserve districts. The continued economic improvement necessary for the Fed to eventually begin boosting short-term interest rates will appear in the Beige Book, and it is often looked to for clues about how the Fed will view the state of the economy when it next meets.

While the economy was improving as of the late February polling, the pace was modest and impacted by the spate of winter snowstorms around much of the country. In fact, severe winter weather was cited repeatedly as keeping a lid on economic activity.

Although consumer spending showed slight improvement, areas of weakness are evident, such as commercial real estate, construction, loan demand, and the labor market. No surprises there, certainly.

The report noted that housing was generally improved, but several of the Fed districts “softened or remained weak.” Contacts also expressed nervousness about what will happen to home sales once the homebuyer tax credit expires.

One final element key to the Fed being able to hold interest rates at low levels or being forced to raise them is inflation. Some increases in raw materials prices were seen, but firms were unable to pass along those increases to customers due to competitive pressures and a lack of pricing power characteristic of a weak economy. “Districts generally expected stable prices overall heading forward,” it said.

All in all, the Beige Book was about what was expected. The effects of the winter weather on economic activity only give the Fed additional latitude to maintain a wait-and-see economic approach.