Bill Dudley says US economy hit by 'temporary factors'

The US economy probably grew by a weaker than expected 1 per cent in the first quarter of this year but growth should accelerate in the months to come as "temporary factors" dissipate, a senior Fed policy maker said on Monday.

Friday's underwhelming jobs report for March, which saw the US create just 126,000 jobs, was the latest piece of data to indicate that the first three months of 2015 were weaker than expected, Bill Dudley, president of the New York Federal Reserve, said in a speech.

But he added: "Overall, I view these downside surprises as reflecting temporary factors to a significant degree."

Those factors included a harsh winter that saw record snowfall in Boston and other parts of the northeast of the US. An analysis by his staff had determined the winter had been 20 per cent to 25 per cent worse than the five-year average, Mr Dudley said, and "such large deviations appear to have meaningful negative impacts on a number of economic indicators".

A strong dollar and the resulting hit to exports as well as the impact of a fall in oil prices on investment in the oil sector would probably prove a drag on the economy, he said, and still represented a threat to growth forecasts ahead.

But, overall, Mr Dudley said the US was poised for stronger growth, justifying the anticipated move by the Fed later this year to start raising rates for the first time since the financial crisis.

The key question, he said, was how US households would respond to an improving economy and what should be increases in real disposable incomes.

Data showed the household deleveraging that followed the crisis as Americans paid down their debts "has largely run its course", leading to what should be a period of strong consumer spending.

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At 5.5 per cent, the US unemployment rate was nearing the point where his staff believed it should lead to a faster pick up in wages. Lower oil prices had also reduced the US's oil import bill by half a percentage point of gross domestic product, representing a "significant boost to real disposable income for households".

"How much this energy windfall boosts consumption will depend, though, on how much is spent versus saved," he said.

Mr Dudley spoke as new data indicated that at least one part of the US economy was growing strongly. The ISM non-manufacturing index for March, which measures services, declined slightly to 56.5 in March.

But Paul Ashworth, chief US economist for Capital Economics, said that measure was consistent with annualised growth of about 3 per cent. A related employment index had also risen slightly to a level consistent with monthly gains in services payrolls of about 250,000.

"Based on this survey, rumours of the demise of the US economy have been greatly exaggerated," Mr Ashworth said.

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