3/6/14 – U.S. Economy: More of a “Snowdown” than a Slowdown

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Mar 6, 2014 8:18:08 AM

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This has been a terrible winter—long and brutal, with lots of snow and gray days. I don’t do winter well, but I normally don’t break until around February, which means I only have to tough it out for a little longer. This year, I broke in December. It’s been a long January and February, and it looks like it may be a long March as well.

This is not to announce that I’m moving to Florida (although the subject has come up at home), but to provide some context for the slowdown we’ve seen in many of the economic statistics. Employment has been the worst hit, but retail sales, housing, and durable goods sales (cars) have also shown some damage. The question has been, as we looked at the data, whether this is an actual slowdown in the recovery, and potentially the prelude to a recession, or just a short-term dip caused by the weather.

We still aren’t out of the woods entirely, but the data is starting to suggest that, in fact, it is more the cold weather than a general slowdown.

Employment first. Although the establishment survey of employers reported weak results for the past two months, and may well do so this month, almost all of the other data points are strong. A couple of recent stats emphasized this. Initial unemployment claims dropped to 323,000 from 348,000, below the lower end of the expectation range. The Challenger job cuts figure was down to −24.4 percent from +11.2 percent. Unemployment and household jobs figures have been much stronger than the establishment survey. Things don’t look bad, and the recent news is getting better.

Next, housing. Mortgage applications were up by more than 9 percent, from a decline of 8 percent, which is a big positive swing. Sales of new homes were actually up almost 10 percent, as opposed to a previous decline of 7 percent. For retail sales, personal consumption spending was up by more than expected, at 0.4 percent, boosted by an also higher-than-expected rise in personal income. Auto sales also rose on a month-to-month basis. Looking forward, one of the best indicators of future growth, consumer confidence, improved across the board as well.

Other data also supports increased growth. Despite the weather, the Federal Reserve survey known as the Beige Book reported improvements in 8 of 12 regions, with the decline in at least two of the others explicitly due to weather. No one is denying the effects of the weather; the question is whether this is something more than that, and the answer at the moment seems to be no.

That said, we do appear to be seeing some decrease in activity levels. The growth estimate for the last quarter of 2013 was revised down, and business surveys are showing some indications that business is becoming less confident. Even as the economy continues to grow, it may do so less quickly than had been thought. A slowdown in a healthy growth level is not a cause for panic, though, and may well be due to weather-induced caution.

Overall, the evidence shows more of a “snowdown” than a real slowdown so far, although we should get enough data to make a better determination in the next month or so.

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