Forex Trading: Currency Briefing – Bad weather not only culprit in US stall
The recent releases of US economic data have been disappointing, with the latest reports on jobs, retail sales and factory output reports all falling below expectations.
Just last week came news of a weakening of New York-area manufacturing this month, a 16 percent fall in new home construction in January and slippage in sales of previously owned homes by five percent.
At least some of this weakness has to do with what has been one of the coldest and most snow-laden winters for years in the United States. The minutes of the Federal Reserve’s January policy-setting meeting, released last week, record the general view round the table that December’s lackluster jobs report “may have been an anomaly, perhaps importantly reflecting bad weather.” That interpretation is of course not assisted by the declining participation rate, which indicates a faltering economy.
The minutes show sanguinity in the FOMC’s overall view of the economy, with the impression strongly conveyed that it will take a clear and present weakening for the committee to deviate from tapering bond purchases by a further $10 billion when it next meets in March.
Laying all of the blame on the weather is problematic, in the view of many analysts. The January employment report a week after the FOMC meeting showed job gains below economists’ expectations, while the Labor Department’s survey period for its payroll count came during a relatively warm patch. JP Morgan Chase economist Michael Feroli points out that the weakness in the January retail sales report included online sales which usually do well during bad weather.
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So the economy is experiencing more than just cold weather blues. Most likely, there is just a rebound from a strong fourth quarter. But there is also the chance that, once again, an economy looking like it had finally achieved sustainable recovery is instead stumbling.
That possibility sets up financial markets for what could prove to be a trying period, with the Fed seemingly unlikely to change course and a February during which the cold snap has continued unabated. Uncertainty about what is going on with the economy can only continue.
The February employment report, for example, will be the last one the Fed gets to see before its March meeting. The gathering in Washington DC will be subjected to intense scrutiny as the first to be presided over by the new Fed chair, Janet Yellen. The jobs count will be based on how many people were on employer payrolls during a pay period that included February 12, when about 55 percent of the continental United States was blanketed with snow.
The Case-Shiller/S&P housing index due tomorrow is expected to show that home prices rose more than 12 per cent in 2013 but the latest reading will reflect activity before the worst weather hit. New home sales for January, due out Wednesday, are expected to show a third consecutive month of decline.
As regards the jobs market, closely watched with the unemployment rate nearing the 6.5 percent threshold, it may not be until the March employment report comes out in early April that there will be a relatively clear view of progress. Similarly with other closely watched economic indicators.
It all leaves the Fed unlikely to waver in its plan to keep scaling back its asset purchases but let’s not forget the oft-stated mantra that the taper is not ‘pre-set’.
*Editing by Frank Quin*