Economy Grows, But Storms Hurt Some Areas

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.

Snowstorms Hurt Clothing Sales In February

Most retail sectors including electronics and luxury items saw sales gains in February, data released Wednesday show, though snowstorms that shut in shoppers also chilled sales at women's clothing stores.

The latest numbers from MasterCard Advisors' SpendingPulse also show online sales rose sharply and sales of footwear and men's clothing also increased compared with a year earlier.

The figures, which track transactions in all forms including cash, really just signal stabilization, however, analysts said, because February 2009 sales were abysmal and consumer confidence had hit an all-time low.

"The disruptive weather did impact things," said Michael McNamara, vice president of research and analysis for SpendingPulse.

But spending overall remains tepid amid high unemployment and tight credit, he said. Clothing sales fell 1.8 percent on top of an 11.8 percent drop in February 2009. Women's clothing sales fell 1.6 percent last month, while sales of men's clothing rose 5.7 percent and footwear rose 2.2 percent.

Showing the most improvement for Jan. 31 to Feb. 27, compared with a year earlier, were:

• Consumer electronics, up 5.8 percent, for a sixth monthly increase.

• Luxury sales, excluding jewelry, up 15.2 percent, following gains of 8.1 percent in January and 5.5 percent in December.

• Online sales, up 16.7 percent, though the average transaction shrank 3.7 percent.

The figures come a day before retailers report on their sales at stores open at least a year. Analysts predict chains saw the figure grow modestly for the third straight month. The sales comparison is considered a key indicator for retailers because it excludes sales at stores that open or close during the year.

Ken Perkins, president of RetailMetrics market research firm, said February customer "traffic was good in between the snowstorms," and shoppers appeared to buy regular-priced spring fashions despite the snow, an encouraging sign for the economy.

"Retailers seem not to have needed extreme discounting to drive traffic to their stores," McNamara agreed.

The real test will come later when monthly figures are being compared with last spring, summer and fall's more stable spending patterns. February -- sandwiched between post-holiday clearance and spring -- is the second-least important month of the year for retailers after January. Analysts see combined data for March and April as a more accurate measure of consumer behavior.

"The impacts from nature and the light volume of February sales make it difficult to read too much into the this month's performance," said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

He estimated that his group's index of sales at stores open at least a year will show a 2 percent rise for February when it's released Thursday. The index gained 3 percent in January and 3.6 percent in December. In February 2009, it fell 4.3 percent.

The index includes about 30 retailers but not Wal-Mart Stores Inc., the world's largest retailer, which stopped releasing monthly results last year.

Analysts will study retailers' reports for signs the economic rebound might strengthen. That's because most economists agree that business investments and exports may drive a short-term recovery, but a robust turnaround in consumer spending is essential to keep it going.

Consumer confidence dove unexpectedly in February. And unemployment, 9.7 percent in January, was expected to increase to 9.8 percent in February. Economists say snowstorms could have inflated job losses by as much as 100,000. The Labor Department is to report job figures on Friday.

Some retailers have said February turned out better than expected. Victoria's Secret parent Limited Brands Inc., which had forecast flat sales, now expects to report sales to rise by a high single- to low double-digit percentage for February at stores open at least a year.

Taken from reports by The Federal Reserve, The Institute for Supply Management, SpendingPulse, RetailMetrics, International Council of Shopping Centers, AP, Reuters.