US economic growth could slip on the snow

Workers delivering produce during a snowstorm in the Chinatown neighbourhood of New York. February payrolls could be the next victim of the severe weather conditions in the US. — AP

February payrolls may be the next victim of the severe weather that has gripped the country during the last three months, following disappointing data on retail sales and manufacturing in January. This week’s snow and ice storms in the eastern US came during the period the Bureau of Labour Statistics refers to in its monthly employer survey, which it uses to calculate changes in payrolls, hours and earnings for the jobs report scheduled for release on March 7.

That may make it difficult for Federal Reserve policy makers to gauge whether signs of weakness can be chalked up to the elements, or if the economy has taken a turn for the worse. Firms from Goldman Sachs Group to Morgan Stanley have reduced their estimates for first-quarter US growth, after forecasters entered the year with the most optimism since 2010.

“We had a strengthening pattern in consumer demand and that’s been revised away,” said Mike Englund, chief economist at Action Economics in Boulder, Colorado, who lowered his first-quarter growth estimate to an annual pace of 2.3 per cent from 2.5 per cent. “The weakening pattern in the first-quarter data probably is attributable to weather.”

To be counted as employed in the BLS survey, workers on non-farm payrolls must have received pay for some part of the earnings period that includes the 12^th of the month. The winter storm may affect the February survey results if large numbers of workers had to stay home for the entire period without pay and weren’t counted.

A report on Friday from the Fed showed factory production unexpectedly declined last month by the most since May 2009, in part because of the weather.

The 0.8 per cent drop followed a revised 0.3 per cent gain the prior month that was weaker than initially reported. The median forecast in a Bloomberg survey of economists called for a 0.1 per cent advance in January. Shoppers may pick up the pace of purchases after the weather improves, other figures on Friday indicated.

The Thomson Reuters/University of Michigan preliminary index of sentiment held at 81.2 this month. The median estimate in a Bloomberg survey called for a drop to 80.2. A gauge of the economic outlook improved to the highest level in six months.

The disappointing US data on manufacturing and retail sales followed two straight employment reports that fell short of economists’ forecasts. Payrolls grew by 113,000 in January and by 75,000 in December, the weakest back-to-back gains in three years.

Because last week’s storm fell during the employer survey period, the weather effect may be even greater in February’s report, said Englund.

While his forecast calls for payrolls growth to accelerate to 170,000, “we do see the risk now to the downside,” he said. “We don’t see much room for catch-up. The question now is whether there is going to be an additional hit.”

Government offices in Washington closed on Friday as a winter storm that paralysed the South with snow and ice moved to the Northeast, cancelling flights, snarling traffic and downing power lines along the way.