Fed: U.S. economy still struggling to gain traction

WASHINGTON - The U.S. economy is struggling to escape the impact of a strong U.S. dollar and harsh winter weather, the Federal Reserve said Wednesday.

In its latest survey of business conditions around the country, the Fed said that eight of its 12 banking regions described the economy as growing at either a moderate or modest pace with two others - Atlanta and Kansas City - describing conditions as steady.

The report said that demand for manufactured goods was mixed with the strong dollar cutting into demand for exports. The plunge in oil prices since last summer has also dented some industries.

The information included in the report, known as the Beige Book, will be used by Fed policymakers when they next meet on April 28-29.

"The Beige Book essentially confirmed the underlying narrative that the combination of the harsh winter, strong dollar and sharp drop in energy prices has generated some stiff headwinds for the economic recovery, and while the brunt of the drag on activity is now in the rear-view mirror, the lingering effects are still being felt," said Millan Mulraine, an economist with TD Securities, in a note.

Fed officials said at their March meeting that they did not expect to begin raising interest rates at the April meeting although they did drop language that said they would be "patient" in moving to raise a key interest rate which has been at a record low near zero since late 2008.

Some economists say the Fed could start raising rates at the June meeting although other analysts are becoming more convinced that the recent economic slowdown and very low inflation will convince the Fed to wait until later in the year before starting to raise rates.

In the new survey compiled by the Fed's 12 regional banks, the Fed found that the big rise in the value of the dollar in recent months was having an impact especially on manufacturing companies with overseas markets.

The report said that a slowdown in the chemical industry had been reported by contacts in St. Louis and Kansas City while chemical companies in the Dallas region talked about a drop in export demand which they blamed on the rising value of the dollar. A stronger dollar makes U.S. products more expensive in foreign markets.

The Boston, Cleveland, Chicago and Dallas districts all reported some weakening in manufacturing that could be attributed to the rise in value of the dollar.

The report found that falling oil prices were giving consumers more money to spend on other products outside of energy but were having a dampening effect on energy companies, cutting investments in oil and gas drilling. Multiple districts reported increased job layoffs at energy companies because of falling oil prices.

However, the Atlanta district, which covers Disney World and other tourist destinations in Florida, said that the lower gasoline prices were boosting attendance at tourist sites. The report said that auto sales were up in most districts with some reporting that lower gas prices were causing some buyers to switch from cars to SUVs.

Various districts reported that tourism and business travel seemed to be rebounding following the harsh winter.

The report found that labor markets were showing modest improvements despite the higher layoffs in the energy sector with some regions reporting difficulty in finding skilled workers.

The report said there were some examples of modest upward pressure on wages and overall prices.

"In most Districts, labor market conditions remained stable or continued to show modest improvement," the Fed said.

Severe winter weather hurt growth in the fourth quarter of last year and in early 2015, with many forecasters expecting gross domestic product of less than 2 percent for the first three months of the year. But economists think the economy is likely to rebound later this year, citing steady hiring, rising income and the benefits of low energy costs.

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