Fed's Beige Book: US economy emerges from winter freeze

The US economy is showing clear signs of emerging from the brutal winter, with consumer spending picking up broadly, the Federal Reserve's Beige Book survey said Wednesday. "Economic activity increased in most regions" of the country since the early March report, the Beige Book said, with "modest or moderate" expansion in most of the Fed regions surveyed. The review of economic conditions covered mid-February through early April, capturing still-severe winter weather effects that began to fade last month. The survey confirmed the Fed's view that much of the economy's hibernation earlier in the year was due to severe winter weather, and a thaw would come as weather warms up. The report will be used in the next monetary policy meeting of the Federal Open Market Committee on April 29-30. Eight of the 12 Fed regions surveyed reported "modest or moderate" economic growth during the period. Chicago reported a pick-up in growth, while New York and Philadelphia reported rebounds from weather-related slowdowns earlier in the year. Only the Cleveland and St. Louis districts, in the heart of the storm-battered Midwest, said that growth slackened. Consumer spending, the lifeblood of growth representing two-thirds of US activity, strengthened in most districts, "as weather conditions improved and foot traffic returned," the report said. "Retailers reported improvement from generally weak sales at the beginning of the year that were most likely the result of winter storms." Auto sales rose in seven regions and tourism was generally in better shape, especially in the Philadelphia, Minneapolis and Kansas City Fed regions where ski resorts had "record seasons". Transportation showed greater signs of life, with higher port volumes and increased trucking. "Even in districts where transportation was soft, the outlook was optimistic," the report said. Manufacturing, the key sector in US industrial production, improved in most districts. Several districts reported the impact of winter weather was "less severe" than earlier this year. In the slowly recovering housing market, home prices increased modestly and inventory remained tight across most regions. The labor market, a primary concern of the Fed as it gauges how quickly to tighten its ultra-easy monetary policy, revealed "conditions were mixed but generally positive." The New York, Cleveland, Richmond, Chicago, Kansas City, and Dallas districts said there was difficulty finding skilled workers. In most districts, wage pressures were contained or minimal. Inflation, the second pillar of the Fed's dual mandate of maximum employment and price stability, continued to tread well below the Fed's 2.0 percent target. Prices overall were "stable or slightly higher". - Yellen: inflation under control - Fed Chair Janet Yellen earlier in the day said the FOMC's outlook for continued, moderate growth was little changed from last fall, despite some negative data. "The unusually harsh winter weather in much of the nation has complicated this judgment, but my FOMC colleagues and I generally believe that a significant part of the recent softness was weather-related," Yellen said in a speech at The Economic Club of New York. Yellen said that inflation is expected to rise slowly from current low levels but not go much beyond the Fed's target, in part because of slowing energy price rises and a fall in import prices. The Fed "is well aware that inflation could also threaten to rise substantially above two percent. At present, I rate the chances of this happening as significantly below the chances of inflation persisting below two percent," she said.