Frigid Winter Has Given Way to a Warming Economy

The U.S. economy is emerging from hibernation after a bleak winter.

Consumers are ramping up spending, businesses are ordering more goods and manufacturers are expanding. The strengthening numbers show that harsh snowstorms and frigid cold in January and February were largely to blame for the economy’s scant growth at the start of the year.

Growth appears to be picking up as the weather improves, and economists think the government on Friday will report a solid hiring gain in April exceeding 200,000 jobs.

“Harsh winter weather deferred, delayed and displaced but did not destroy economic activity,” said Diane Swonk, chief economist at Mesirow Financial.

Meager growth early this year “did not reflect underlying demand,” she said.

The economy barely expanded in the first quarter, eking out an annual growth rate of just 0.1 percent, compared with a 2.6 percent rate in the final three months of 2013. Americans spent more last quarter on utilities and health care, but their spending on goods barely rose. Businesses also reduced spending, and exports fell.

One drag on the economy appears to be the faltering housing recovery. Home building and renovation declined in the January-March quarter, slowing growth for a second straight quarter.

Builders started work on fewer homes in March than they did a year earlier. Sales and construction may rebound later this year, but economists don’t expect housing to contribute much, if at all, to growth.

Still, other data indicate that the economy was already rebounding in March and probably improved further in April. Auto sales jumped 8.5 percent in April compared with the same month a year ago, the best April sales increase in nine years.

Consumers spent more at furniture stores and other retail chains. Overall consumer spending soared 0.9 percent in March, the government said Thursday, the most in 4½ years.

Economists watch consumer spending closely because it makes up about 70 percent of economic activity.

“It is clear that many Americans headed out to the shopping mall and automobile dealerships in March after staying home and cranking up the heat for the first two months of the year,” said Chris Christopher, an economist at IHS Global Insight.

Spending is up partly because Americans earned a bit more, and confidence has improved from the bleak winter months. Incomes rose 0.5 percent in March, the government said, the most since August.

Consumer confidence has nearly returned to pre-recession levels, according to two surveys by the Conference Board and the University of Michigan. Americans are increasingly optimistic about economic growth and hiring.

Also Thursday, a private survey showed that manufacturing activity accelerated in April for a third straight month. The Institute for Supply Management said its manufacturing index rose to 54.9 in April from 53.7 in March. Any reading above 50 indicates expansion.

Measures of export orders and hiring rose, and new orders increased at a healthy pace. Factories are recovering after many had been shut down early this year by snowstorms and freezing weather.

Businesses are also investing more in machinery and equipment, after cutting back in those areas in January and December. Business orders for manufactured goods jumped in March, the government said last week.

All told, the positive news has led most economists to forecast a strong rebound in economic growth — to a 3.5 percent annual rate in the current April-June quarter. And growth should reach nearly 3 percent for the full year, up from 1.9 percent in 2013, they expect.

That would likely fuel more job growth. Economists predict that employers added a sizable 210,000 jobs last month.

The number of people seeking unemployment benefits has reached roughly pre-recession levels. That suggests that layoffs remain low.

Even the slumping housing market has reported some good news this week. Signed contracts to buy existing homes rose in March for the first time in nine months. That holds out the hope of higher sales in the months ahead.

And construction spending ticked up in March, fueled partly by more home- and apartment-building.

“We continue to see momentum in the economy picking up,” said Michael Brown, an economist at Wells Fargo.

This article appeared in print in the May 2nd, 2014 edition of Hamodia.