U.S. Economy: Japan Crisis is Taking a Toll
Policy + Politics

U.S. Economy: Japan Crisis is Taking a Toll


While U.S. economic activity continued to expand across the country’s 12 Federal Reserve districts, the crisis in Japan and the near shutdown of the federal government have led to uncertainty among businesses about sales and production this spring, according to the Fed’s latest “Beige Book.”

Despite the economic improvement, manufacturers in particular are concerned about supply chain disruptions stemming from production interruptions, said Marisa Di Natale, an economist with Moody’s Analytics. Seven of the 12 districts reported “actual or expected disruptions to sales and production as a result of the tragedy in Japan.”

“Disruptions in Japan are expected to take a toll on both auto production and possibly sales in the second and third quarters of this year, but both should bounce back in the fourth quarter,” Di Natale said. Other large businesses, such as defense contractors and others that derive a good portion of their business from the federal government are more nervous about large cuts in federal spending that may have a  negative impact on their business, she added, referring to the budget battles in Washington that nearly brought the federal government to a standstill last week.

Higher commodity costs are putting increased pressure on businesses. Energy was the most frequently cited concern, while the cost of raw materials, including oil, grain, and metals were an increasing worry for businesses. The survey found some businesses were trying to pass along higher prices to consumers, but with mixed success. Still, all 12 districts reported “moderate” improvements in economic activity since the last report in March.

Manufacturing continued to lead economic activity with almost every district citing examples of marked improvement. All 12 districts reported improvement in factory conditions, including production levels. Auto production has been especially strong in Richmond and Chicago, but Cleveland reported a slight dip.

Additionally, consumer spending picked up modestly since the last report, according to the Fed. New York described retail sales as “robust” in February and March. But as gas prices continued to soar, the survey said consumers limited their shopping to necessities and lower-priced options. Still, auto sales rose in most districts. Three districts, San Francisco, Atlanta and Cleveland said improved availability of credit helped to boost car sales.

Residential construction activity was still declining in the St. Louis and Minneapolis Districts, while activity in the New York, Cleveland, Kansas City, Dallas, and San Francisco Districts remained weak, the report said.
Most districts reported marked improvements in the labor markets but several cited concern about being able to find certain types of skilled workers. Some businesses in the Philadelphia and Cleveland districts still preferred to hire temporary over permanent workers, the report said.

The economic survey, the third of eight this year, is a roundup of economic data from 12 districts in the U.S.

Related Links:
Beige Books Cites Japan (Market Watch)
Fed Reports Economic Improvement (Wall Street Journal)
U.S. Economy Expands as Labor Markets Improve, Fed Report Says (Bloomberg)