Thawing out: Warmer temperatures lift U.S. economy
Washington • Spring's thaw is reviving the economy, too.
A recent batch of government and business reports show a U.S. economy emerging from winter's deep freeze.
Economists had expected the growth to accelerate in 2014 after two years of slow and steady improvement. But an unusually bitter winter sent factories, hiring and consumer spending into hibernation.
Now, as temperatures rise, the economy is regaining momentum. Factories are busier. Consumers are spending more. Banks are making more loans to businesses. Companies have bigger plans to invest in plants and equipment. And the improvement appears to be widespread across the country.
"The weather really played havoc. There were ice storms in Georgia. That is not something you see every day," said Michael Dolega, senior economist at TD Economics. "Now, as Americans have dug themselves out and everything has melted, you're going to get a bounce back."
An index based on several leading economic indicators including employment, consumer confidence, stocks and interest rates shot up for the third straight month in March, the Conference Board, a business research association, said on Monday. The index's 0.8 percent gain to 100.9 "suggests accelerated growth for the remainder of the spring and the summer," said Ken Goldstein, a Conference Board economist.
Many economists expect the economy to grow at an annual rate of 3 percent or more from April through June, up from an estimated 1.3 percent the first three months of the year. The positive economic news has sparked a rally on Wall Street the past week. The Standard & Poor's 500 index is up 0.9 percent for the year and is near its record close of 1,890 set April 2.
Helping to drive the growth have been recent increases in manufacturing after tumbling in January. Factory production climbed 0.5 percent in March, after a 1.4 percent surge the previous month, the Federal Reserve reported last week. This suggests that manufacturers anticipate that demand from businesses and consumers will increase.
After the winter slowdown, recovering motor vehicle sales have boosted revenue for companies such as Batesville Tool & Die in Batesville, Ind.
"We feel like the auto industry is all the way back from before the recession," said Jody Fledderman, the company's president and CEO. "The numbers we see are fully recovered from then. We expect to see 4 to 8 percent increases in the industry overall for the next three or four years."
Weekly government reports on unemployment benefits show that most employers are prepping for stronger growth in the months ahead.
Claims for jobless benefits are a proxy for layoffs. The four-week average for unemployment claims have plunged to a 6 Â½-year low, according to the Labor Department.
The most recent weekly average was 312,000 applications, down from 357,000 a year ago and the smallest average since October 2007, which was two months before the Great Recession started.
The number of claims is consistent with job gains of "200,000-plus" this month, said Sal Guatieri, senior economist at BMO Capital Markets.
That would be slightly better than the 192,000 jobs employers added in March and the 197,000 hired in February.
Among those benefiting from a stronger job market is Courtney Ginder, 23. She found work almost immediately after graduating last year from Purdue University in West Lafayette, Ind. She writes press releases, manages a corporate website and does other tasks for an Indiana company that helps manufacturers monitor their equipment remotely. "I love my job," she says. All of her Purdue friends, she says, also landed jobs in their field after graduation, too.
Shopping has also recovered along with temperatures. March buying at general merchandise stores, such as Wal-Mart, Target and Macy's, climbed at the fastest clip in seven years, the Commerce Department said last week.
Total U.S. retail sales rose last month by 1.1 percent, led by purchases of autos and furniture.
Consumers account for about 70 percent of all economic activity, making them a key driver of overall growth.
The nearly 5-year recovery has been subdued, in part, because consumers have not experienced the wage growth to restore spending to pre-recession levels.
However, households have reduced debt since the Great Recession of 2007-2009, giving them a bit more leeway to spend. Banks have unloaded the bad loans that piled up in the financial crisis and are lending again to businesses. The percentage of companies that increased their spending on capital equipment the first three months of the year was the highest in more than two years, and plans to increase capital investment also rose sharply, according to a survey released Monday by the National Association of Business Economists.
A Federal Reserve survey released last week showed economic growth picking up across most of the United States over the past two months as the weather improved. Ten of the Fed's 12 regions reported an increase in economic activity, according to the Beige Book survey. Only the Cleveland and St. Louis districts reported slower growth.
The Fed has been scaling back its efforts to help the economy, deciding last month to reduce its monthly bond purchases by $10 billion. The $55 billion in purchases are meant to keep long-term interest rates low and to encourage borrowing and spending. Still, Fed Chair Janet Yellen has said the economy needs more help. The Fed has kept short-term rates near zero.
The Great Recession ended nearly five years ago. But unemployment remains high at 6.7 percent, and 3.7 million Americans have been out of work for six months or more.