The US economy in February experienced modest growth despite bad weather, eight of the 12 Federal Reserve System districts reported on Wednesday. Chair of the Board of the Federal Reserve System. Janet Yellen and colleagues are trying to find out whether recent economic weakness has been due to severe weather conditions or fundamental obstacles to GDP (gross domestic product) expansion.
In its summary of conditions in the 12 districts, known as the Beige Book, the Fed said the US economy grew in most districts last month, even as abnormally severe weather conditions undermined hiring, disrupted supply chains, and kept shoppers away from auto dealerships and retail outlets.
The districts of Philadelphia and New York experienced a moderate decline in activity, mainly due to unusually severe weather. Kansas City and Chicago experienced slower growth, but reported stable conditions. “The outlook among most Districts remained optimistic,” the Fed wrote.
Yellen pledged on Wednesday in prepared remarks at a swearing-in ceremony at the US central bank in Washington that she will do all she can to encourage the economy towards growth. She said there are aspects of the economy which are running well short of the Fed’s objectives.
We have farther to go
Yellen, who took over from Ben Bernanke on February 1st, 2014, said:
“The economy continues to operate considerably short of these objectives. The economy is stronger and the financial system is sounder. We have come a long way, but we have farther to go.”
The main objectives she was referring to were full employment and stable prices.
Yellen’s Wednesday comments were a reiteration of what she said before two Congressional committees in February, that the US economy is appears to be gradually recovering from the Great Recession, but that she and her Fed colleagues are in no hurry to tighten fiscal policy.
US GDP grew by 2.4% annualized during the fourth quarter of 2013, and also experienced growth despite bad weather in 2014, albeit at a slower pace.
Unemployment still too high
Unemployment is currently running at 6.6%, much lower than the 10% seen at the height of the recession in 2009, but is still considered to be high. The creation of new jobs remains erratic.
There are millions of Americans who are no longer seeking employment because they have simply given up trying. Several studies have shown that for employment rates to return to pre-recessionary levels, eight million new jobs need to be created.
The US Federal Reserve system wants to see unemployment fall to approximately 5.5% and is aiming for 2% inflation.
“Too many Americans still can’t find a job or are forced to work part-time. I promise to never forget the individual lives, experiences and challenges that lie behind the statistics we use to gauge the health of the economy.”
“When we make progress toward our goals, each job that is created lifts this burden for someone who is better equipped to be a good parent, to build a stronger community, and to contribute to a more prosperous nation.”
Yellen added that the Fed will move “quickly and responsible” to complete the Wall Street reforms (complete implementation of the Dodd-Frank Act) that remain to ensure the safety of the financial system.
Slower job creation in February
A private payroll-based report showed that firms added fewer employees than had been forecast in February. The ADP research Institute in Roseland, New Jersey, reported that the US private sector (non-farm) added 139,000 jobs in February, far below the average monthly increase over the last 12 months.
(Source: ADP Inc./Moody’s Analytics)
The breakdown of the 139,000 new jobs was as follows:
- Goods-producing – 19,000.
- Service-producing – 120,000.
- Financial activities – -2,000 (fall).
- Manufacturing – 1,000.
- Construction – 14,000.
- Trade/transportation/utilities – 31,000.
- Professional/business services – 33,000.