US recovery is slow and outlook remains uncertain - Bernanke

02 February 2012 17:39  [Source: ICIS news]

WASHINGTON (ICIS)--The US economic recovery has been frustratingly slow, and while growth this year is expected to be somewhat better than in 2011, the outlook is uncertain and the economy remains vulnerable, the US central bank chief said on Thursday.

Federal Reserve Board chairman Ben Bernanke told the House Budget Committee that while the US economy has improved over the 30 months since the recession ended in June 2009, the expansion has been sluggish.

For the economy going forward, Bernanke said, much depends “on the ability and willingness of households to spend”.

Bernanke said that although US consumer spending rose moderately in the last three months of 2011, “households continue to face significant headwinds”.

Consumer spending is the principal driving force of the US economy, accounting for as much as 70% of all commercial activity and production.

“Most notably, real household income and wealth stagnated in 2011, and access to credit remained tight for many potential borrowers,” Bernanke said.

Noting that household spending will depend heavily on developments in the employment market, Bernanke said that while the overall jobs situation does appear to have improved slightly over the past year, “we still have a long way to go before the labour market can be said to be operating normally”.

Consequently, job prospects for long-term unemployed Americans remain uncertain, he said, with more than 40% of the jobless without gainful employment for more than six months.

The still uncertain employment situation combined with tight mortgage credit conditions “continue to hold back demand for housing”, Bernanke said.

In spite of record-low home loan interest rates and the sharp drop in housing values in recent years, the Fed chief noted that “both residential sales and construction remain depressed”.

“A persistent excess supply of vacant homes, largely stemming from foreclosures, is keeping downward pressure on prices and limiting the demand for new construction,” he told the panel.

The US housing industry, especially new home construction, is a key downstream consuming sector for the nation’s chemicals manufacturers.

Bernanke noted that while household spending has remained subdued, “the business sector has been a relative bright spot in the current recovery”.

Manufacturing has increased 15% since its trough, business capital spending has grown briskly over the past two years, and many US production and service industries have benefitted from strong foreign demand, he added.

However, he said, “more recently the pace of growth in business investment has slowed, likely reflecting concerns about both the domestic outlook and developments in Europe”.

On Tuesday this week, the Congressional Budget Office (CBO) predicted that US gross domestic product (GDP) growth would be only 2% this year and would likely drop to 1.1% in 2013, with unemployment holding above 8% and nearing 9% this year and next.

Bernanke said that the ongoing crisis in the euro zone is having spill over effect worldwide, and that global economic activity “appears to be slowing”.

He noted that while European leaders are working to contain the EU fiscal and financial crisis, “risks remain that developments in Europe or elsewhere may unfold unfavourably and could worsen economic prospects here at home”.

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

By: Joe Kamalick
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