Fed chief Bernanke sees slower US GDP, jobs growth ahead

04 October 2011 17:26  [Source: ICIS news]

WASHINGTON (ICIS)--The US economy will experience slower growth over the next several quarters than previously forecast, Federal Reserve Board Chairman Ben Bernanke told Congress on Tuesday, and jobs growth will be more sluggish.

In presenting his regular semi-annual economic outlook before the Joint Economic Committee of Congress, Bernanke said that while there have been some positive developments in the nation’s economy, other and more persistent downside factors “continue to restrain the pace of recovery”.

Consequently, he said, the Fed “now expects a somewhat slower pace of economic growth over coming quarters than it did at the time of the June meeting”, referring to the central bank’s rate-setting conference earlier this year.

He also cautioned that the Greek debt and euro crisis in Europe pose ongoing risks to US economic growth.

Despite some gains in manufacturing production, growth in exports and business spending on equipment, the Fed chief said that “nevertheless, it is clear that, overall, the recovery has been much less robust than we had hoped”.

Bernanke noted that the slow pace of recovery was due in large part to consumers’ worries about their economic futures, a condition that both reflects the sluggish economy and slows it further.

“Households have been very cautious in their spending decisions,” he said, “as declines in house prices and in the values of financial assets have reduced household wealth”.

“Many families continue to struggle with high debt burdens or reduced access to credit,” he said, adding: “probably the most significant factor depressing consumer confidence, however, has  been the poor performance of the job market.”

Noting that the US unemployment rate has been holding at a persistently high 9% or slightly higher, Bernanke warned that “more recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead”.

Although he did not predict a specific US gross domestic product (GDP) pace for the second half of this year, neither did the Fed chairman offer any suggestion that second half GDP growth would be any better than the first half’s performance, which was under 1%.

He also appeared to suggest that there would not be sufficient jobs growth in months ahead to bring down the unemployment rate, noting that private payrolls rose by only some 100,000 jobs per month on average over the US summer months, including zero jobs growth in August, “half of the rate posted earlier in the year”.

The nation needs to add about 150,000 new jobs each month just to accommodate new workers entering the market. To begin lowering the unemployment rate, the economy should be adding 200,000 to 300,000 new jobs each month.

As he has in earlier economic outlook testimony, Bernanke again noted that the US housing sector – which typically leads the nation in post-recession recovery growth – remains nearly stalled, with “the rate of new home construction at only about one-third of its average level in recent decades”.

In the financial sphere, he said that while things have improved since the depth of the 2008-2009 recession, “credit remains tight for many households, small businesses and residential and commercial builders”.

“We also have recently seen bouts of elevated volatility and risk aversion in financial markets, partly in reaction to fiscal concerns both here and abroad,” he said.

“Concerns about sovereign debt in Greece and other euro-zone countries, as well as about the sovereign debt exposures of the European banking system, have been a significant source of stress in global financial markets,” he added.

“It is difficult to judge how much these financial strains have affected US economic activity thus far,” Bernanke said, “but there seems little doubt that they have hurt household and business confidence, and that they pose ongoing risks to growth.”

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy


By: Joe Kamalick
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