Wednesday, March 3, 2010

More Weakness in the Economic Reports Ahead

Inasmuch as the pattern of the overall economic indicators has been decidedly mixed recently, things are going to become even more complicated in the coming weeks as the February data are reported. The reason for this is the series of massive snow storms that hit the East Coast last month, and which are likely to have affected a fairly wide array of indicators.

To start with, February's nonfarm payrolls are likely to show a fairly substantial decline (potentially by as much as 100,000, or more) which, on the face of it, would seem to represent a setback to the profile of steadily diminishing monthly job losses in recent months. The severe snow storm that hit Washington DC, Delaware, New Jersey, and Pennsylvania particularly hard around the time of the BLS survey week in February is likely to have suppressed payroll data in the region with adverse consequences for the overall number. The workweek in Friday's employment report may also show a dip by 0.1 or 0.2 to 33.8 or 33.7, as a result of the snow storm-related disruptions.

(For the record, the February payroll data will also be subject to another distortion, which will be pulling the series in the opposite direction, therefore partially offsetting the drag from the storms: as many as 60,000 workers were probably hired by the federal government to conduct this year's census - a process that is likely to continue skewing the total payroll numbers to the upside for several more months).

But the adverse impact of the multiple snow storms that affected the East Coast last month will also extend well beyond the employment report. The severe weather is almost certain to have suppressed a number of other indicators for February, namely auto sales as well as broader retail sales (not exactly shopping-friendly weather conditions), in addition to housing starts and new home sales.

The essence of all of this is that the key economic releases later in the month are likely to continue projecting an aura of softening economic activity, following a set of other reports since the beginning of the year that seem to suggest a cooling in economic activity. As we argued in another piece earlier this week, the mostly mixed, or plain underwhelming, economic data recently should be viewed as the normal by-product of a historically sub-par economic recovery that fails to generate consistently healthy data. As such, it should not be viewed with particular concern, as they are unlikely to reflect any derailment of the economic recovery.

What the unusually harsh weather patterns experienced in February imply is that it will be a while before we are able to discern more accurately what exactly the underlying forward momentum of the recovery is in the first half of 2010. At this point, a reasonably good bet remains that the weather-induced weakness in a number of economic reports for February will be offset by a quick snap back in the March data and any doubts about the viability of the economic recovery will safely be put to rest then.

Anthony Karydakis

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