Federal Reserve Sees Below-Average Growth

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The U.S. economy is growing at a lower-than-average rate, far short of expectations, as last-year’s optimism turns sour.

A new study by the Chicago Federal Reserve shows that economic fell 10% from January to February as the region’s National Activity Index (CFNAI) slipped to -0.11 from -0.10 in January. That marks the third month in a row of an economic decline, after extremely strong growth in September, October, and November of 2014.

While some economists dismiss the numbers because of poor weather conditions, other note that this year’s February was considerably warmer than a year prior in the Midwest, yet in 2014, the February CFNAI showed very healthy expansion, up 0.59 points.

Productivity saw a contraction in February, contributing -0.07 points to the CFNAI, with manufacturing production causing most of the decline—falling 0.2% in February, a slight improvement from January. Sales, orders, and inventories saw a slight improvement.

Falling Jobs, Demand

Employment indicators were especially weak, driven by a slowdown in civilian employment gains in February. The Chicago Fed saw 759,000 jobs gained in January, but only 96,000 in February while weekly initial unemployment claims rose in February more than they did in January.

While more people in the U.S. are losing work and less new jobs are materializing, personal consumption and housing are showing substantial weakness. Housing starts fell 20% to 897,000 annualized units, according to the Chicago Fed, while a fall in personal consumption contributed to the perceived economic weakness.

A recent study from the National Association of Realtors confirms that demand for homes is falling even as mortgage rates remain at record-low rates. The NAR announced Monday that total existing-home sales rose 4.7% above a year ago but 1.2% less than in January, far below expectations of a month-over-month increase in sales. Total housing inventories also fell 0.5% from a year ago.

More Dovish Implications

The Chicago study confirms several other recent studies showing weakness in national housing and employment even as many economists expected lower energy prices to fuel growth. A recent Freddie Mac study saw less home sales across the country, while the Department of Labor reported a sharp rise in joblessness, as unemployment claims continue to increase.

Many investment banks released notes Monday to clients suggesting that these negative indicators are positive for the U.S. stock market. With a fall in jobs, demand, and production, the likelihood that the Federal Reserve will raise interest rates in the near term dwindle, and the possibility that rates will not rise at all in 2015 is growing.

This has driven Treasury yields further, keeping the U.S. Treasury yield at 1.92%. Some analysts believe yields on long-term bonds can fall further, as weak demand and falling employment drive inflation expectations lower and raise the possibility of a recession in the United States.