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Fed confirms weather-related drag on U.S. economy in early 2014

People rest at the aisle of a Publix grocery store after being stranded due to a snow storm in Atlanta, Georgia, January 29, 2014. REUTERS/T
People rest at the aisle of a Publix grocery store after being stranded due to a snow storm in Atlanta, Georgia, January 29, 2014. REUTERS/T

WASHINGTON (Reuters) - Severe weather across much of the United States took a toll on shopping and consumer spending in recent weeks, leading to slower economic growth or outright contraction in some areas of the country, the Federal Reserve said on Wednesday.

The Fed, in its anecdotal Beige Book report, said economic activity in January and February shrank slightly in two of its 12 districts, New York and Philadelphia, mostly due to "unusually severe weather."

Growth slowed in Chicago and activity was stable in Kansas City. While the other eight districts reported growth, the Fed said it was characterized as "modest to moderate" in most cases, an overall downgrade from its last report on January 15, which showed "moderate" growth in nine regions.

But the report, which is based on information collected from contacts nationwide, showed business contacts were still upbeat, with real estate picking up in some areas and travel and tourism remaining strong.

"The outlook among most districts remained optimistic," the Fed said.

Severe snowstorms have hit large parts of the Northeast, Midwest and Upper Midwest this year, with unusual ice storms hitting the Southeast as well.

But Fed officials have said it will take a major change in the economic outlook to alter plans to wind down the central bank's asset purchases, which have already been trimmed to $65 billion a month.

Economists said the report did not help to clarify the extent to which weather was responsible for the recent soft economic data.

"It really looks at weather as the main source of weakness," said Lindsey Piegza, chief economist at Sterne Agee & Leach in Chicago. "This latest Beige Book doesn't give us much insight. We are waiting for the clean data. We are very muddled. It seemed fairly upbeat with most regions seeing moderate growth."

The word "weather" is used 119 times in the report, compiled by the Federal Reserve Bank of Atlanta from data collected before February 24, and "snow" or a derivative of snow is used 24 times. The word "ice" appeared twice.

Retail sales growth softened in most districts, partly due to weather, but winter storms had a positive effect on demand for weather-related goods in Richmond, Chicago and Minneapolis, the report said.

Heavy snowfalls also benefited ski resorts in some regions, although hotel business was down in western New York State due to winter storms and weather hit demand for services in New York and Philadelphia.

Factory output and sales were affected in regions including Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, and Dallas, where the weather was blamed for utility outages, disrupted supply chains and upset production schedules.

The Fed said poor weather also dragged on jobs growth in Boston, Richmond, and Chicago, but employment levels improved gradually for most districts.

Price pressures remained subdued, although there was some upwards pressure for energy and construction products, the report said.

The Fed's policy-setting committee meets on March 18-19.

(Reporting by Krista Hughes; Additional reporting by Tim Ahmann and Richard Leong in New York; Editing by Paul Simao)

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