Fed chairman Bernanke sees improving but uncertain US recovery

29 February 2012 20:17  [Source: ICIS news]

WASHINGTON (ICIS)--Federal Reserve Board chairman Ben Bernanke on Wednesday told Congress that while the US economic outlook is improving, the recovery remains modest, unemployment is still high and consumer sentiment and spending are relatively low.

In presenting his semi-annual monetary report to Congress, Bernanke told the House Committee on Financial Services that economists and policymakers at the Fed anticipate that US gross domestic product (GDP) growth this year will be around 2.5%.

That rate of GDP expansion would be a marked improvement from the 1.7% GDP advance recorded for 2011, but it would still be below what economists call US trend growth of around 3-3.5% annually.

In addition, Bernanke noted that the Fed’s forecast for 2.5% GDP growth this year is considerably lower than the central bank’s predictions in mid-2011 for 2012 economic growth.

“A number of factors have played a role in this reassessment,” Bernanke said.

“The recovery has been somewhat slower than previously estimated [and] fiscal and financial strains in Europe have weighed on financial conditions and global economic growth,” he said.

In addition, “problems in US housing and mortgage markets have continued to hold down not only construction and related industries, but also household wealth and confidence”.

Bernanke said that while US consumer spending improved moderately in the second half of 2011, “the fundamentals that support household spending continue to be weak”.

“Real household income and wealth were flat in 2011, and access to credit remained restricted for many potential borrowers,” he said, noting that while consumer sentiment has rebounded somewhat from a sharp drop in mid-2011, it remains relatively low.

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

Limited access to credit also hinders the long-depressed US housing sector, he said.

“Unfortunately, many potential home buyers lack the down payment and credit history required to qualify for loans,” he told the House panel, “others are reluctant to buy a house now because of concerns about their income, employment prospects and the future path of home prices.”

And while US job prospects have improved since mid-2011 – with the nation’s unemployment rate dropping from 9% for much of last year to 8.3% in January this year – “continued improvement in the job market is likely to require stronger growth in final demand and production”, he said.

“Notwithstanding the better recent data, the job market remains far from normal,” Bernanke said. 

“The unemployment rate remains elevated, long-term unemployment is still near record levels, and the number of persons working part time for economic reasons is very high,” he added.

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

By: Joe Kamalick
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