Around the Street

Experts Talk Beige Book, ISM Services, ADP Payrolls


Bloomberg BusinessWeek compiles comments from Wall Street economists and strategists on the key economic and market topics of Mar. 3.

Kim Rupert and Michael Wallace, Action Economics

The Federal Reserve's Beige Book [released Mar. 3] said the economy continues to expand since the last [FOMC] meeting, with improvement in nine districts that was mostly described as "modest," with slight improvement in consumer spending in many districts. The Fed acknowledged that severe snowstorms in early February held back activity in several districts, with associated weakness in the Richmond district. Conditions were mixed in St. Louis and Atlanta. Three of five districts reported improvement in transportation, and manufacturing activity strengthened in most regions, with gains for high-tech, autos, and the metal industry. Tourism was increased or mixed.

Residential real estate markets improved in a number of districts, though bad weather was cited here as well, and most districts characterized commercial real estate and construction activity as weak, or having declined further. Loan demand remained weak, and lending standards remained tight, while agriculture was hurt by bad weather. Price pressures were mostly limited, with the exception of gains in raw materials prices, and minimal wage pressures were evident due to labor markets that generally remained soft.

There wasn't anything new or surprising in the Beige Book, which was prepared for the upcoming Mar. 16 FOMC. With the Fed still committed to low rates for an extended period, this report won't have any policy impact.

Joseph Lavorgna, Deutsche Bank

The February non-manufacturing Institute for Supply Management survey was slightly better than expectations, rising 2.5 points, to 53.0, the highest reading since October 2007. We have been arguing the purchasing manager surveys are less likely to be distorted by weather than some of the harder data surveys such as payrolls. Consequently, we have upgraded the importance of the former in gauging the strength of the economy in February.

Within today's release, the employment subcomponent rose four points, to 48.6, the highest reading since April 2008, which is encouraging. The trend here is turning up, but we need to see this series consistently above 50 for us to become comfortable the service sector is generating jobs.

Beth Ann Bovino, Standard & Poor's

The ADP private payrolls survey showed a 20,000 drop in February, weaker than the 10,000 decline markets expected, and after January was revised down to a 60,000 drop (previously down 22,000). The February decline was still the smallest decline in two years. Manufacturing sector [employment] rose 3,000, and the service-providing sector rose by 17,000. However, construction lost 41,000 jobs in February, after declining 48,000 the month before. Not surprising, as the two large [winter] storms would make it hard to build in two feet of snow.

Overall, the ADP February reading was not too far off market estimates. … ADP reported that the storms had a small effect on their estimates, though the storms will likely depress the BLS estimate in February.

Andrew Tilton, Goldman Sachs

Although forecasters have focused on the impact of the February snowstorms on the monthly payroll report, bad weather has the potential to influence many economic indicators. In the labor market, we think the snowstorms explain a substantial amount of the recent ups and downs in jobless claims and will cause a clear hit to payrolls and hours worked, but should have little effect on employment in the household survey. The storms should cut housing starts modestly in February, but should have little impact on home sales in that month. Finally, snowstorms like those seen in February are likely to reduce retail sales (excluding vehicles and gasoline) about 1%, with a hit of perhaps a half-million to the seasonally adjusted annual rate of vehicle sales.

[T]heoretically, the impact from the snowstorms is not limited by the impact on hiring alone, and reinforces our sense that the risks are tilted toward a bigger impact than the roughly 100,000 jobs we incorporated in our payroll forecast.


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