Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest to moderate pace from mid-February through late March. Activity in the Boston, Atlanta, Chicago, Dallas, and San Francisco Districts grew at a moderate pace, while Cleveland and St. Louis cited modest growth. New York reported that economic growth picked up somewhat. Philadelphia and Richmond cited improving business conditions. The economy in Minneapolis grew at a solid pace and Kansas City's economy expanded at a faster pace.
Hiring was steady or showed a modest increase across many Districts. Difficulty finding qualified workers, especially for high-skilled positions, was frequently reported. Upward pressure on wages was constrained. Overall price inflation was modest. However, contacts in many Districts commented on rising transportation costs due to higher fuel prices.
It definitely makes you want to go: ???
The March jobs report, which showed only 120,000 jobs added, came in well below most economists' predictions. One theory is that relatively good, 200,000-plus reports for January and February indicated that mild winter weather was supporting stronger-than-expected economic activity.
My own pet theory is that weather had nothing to do with it — or very little to do with it — and that after a 2011 fourth quarter in which the economy grew at 3 percent (roughly double the 2011 average of 1.7 percent), the economy actually grew at a solid 3 percent in the first quarter, higher than the 2-2.5 percent that a conservative consensus of economists observed.
The Beige Book supports the notion that there's growth in the economy, across the board (well, except in housing), that the Labor Department's data isn't capturing. It's hard to quantify "moderate expansion," but it's probably safe to assume that means GDP growth of 2.5 percent at least.
So why is the economy, the stock markets, the whole sheebang seeming to still be stumbling along? The only thing I can come up with is that consumers, who make up 70 percent of economic activity, continue to shed debt. Couple that with the threat of higher gas prices this summer and you have a formula for a consumer pull-back. Businesses sense this weakness in demand. Presto! No new hires.
Another factor is that consumer may have actually learned something from the financial crisis and are reluctant to take on new debt, preferring instead to intensify their consumption only when their wages really start to climb. Unfortunately, that would signal looming inflation, which could force the Fed to step in an take the stuffing out of a real recovery before it gets started.
Because even though many economists think we need some additional inflation in the economy right now, the Fed worries about how inflation will erode the value of debt. In its history, it's tended to side with creditors on this front (William Greider wrote a whole book about this tendency, called "Secrets of the Temple," a classic of slightly paranoid Fed-ology). Which makes sense. It's a bank, after all. The biggest bank in all the land.
But the focus on controlling inflation over alleviating unemployment could be why the data on the economy looks so weird now.