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Warm Weather Impacting Economic Activity in Early 2012

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By John Canally

NEW YORK (TheStreet) -- The February employment report and the economic data for February in China are the highlights on this week's economic and policy calendar. In addition, the February data on ADP employment, layoff announcements, and merchandise trade for January are due out in the United States. The week will likely be quiet for the Fed, as Fed officials observe the unofficial "quiet period" ahead of the next Federal Open Market Committee (FOMC) meeting on March 13.

However, central banks outside the United States will be busy this week, with rate setting meetings in Brazil, Australia, New Zealand, Russia, South Korea, the Eurozone, the UK, Peru, Canada, Poland, Indonesia, and Malaysia. Of these, only Brazil is expected to cut rates. The rest of these central banks are on hold, for now. There are bond auctions in Austria, the Netherlands, Germany and Belgium, as investors await the March 8 deadline to swap out existing Greek debt for newly issued debt as part of the latest bailout.

The Chinese authorities will begin to release China's economic data for February later this week, with the key report being the Consumer Price Index (CPI) report. A deceleration in the CPI in February could pave the way for the China central bank to continue to ease monetary policy in the coming weeks and months. All of the Chinese economic reports for February will be impacted by the shift in the Lunar New Year to January this year versus February in 2011.

On balance, the vast majority of the economic data in the United States released since early October 2011 has exceeded expectations. This trend reflects underlying improvement in the overall economy due to:

  • Less uncertainty surrounding the debt issues in Europe;
  • A little less rancor (and a little more cooperation) out of Washington compared to this past summer;
  • The improving job market as companies have reached the limit on productivity gains; and
  • A rebound in global economic activity following the global supply chain disruptions that resulted from the Japanese earthquake and tsunami in March 2011.
  • At least some of the improvement in the economic backdrop may be associated with the weather, which has been warmer and drier than usual since last autumn. In general, warmer (and drier) than normal weather tends to boost economic activity. We saw evidence of these trends in the details of the Federal Reserve's (Fed) latest Beige Book -- a qualitative assessment of business and banking conditions compiled via contacts in the private sector in each Fed district. On balance, the Beige Book was relatively upbeat, with all 12 districts reporting expanding (albeit modest) growth and improving conditions in the labor market, bank lending and credit conditions, and in residential and commercial real estate.

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