Fed chief Bernanke warns that US unemployment could worsen

26 March 2012 20:22  [Source: ICIS news]

WASHINGTON (ICIS)--Federal Reserve Board chairman Ben Bernanke on Monday warned that recent improvements in the US employment picture may be temporary and that the nation’s high unemployment rate might continue and could worsen.

In a speech to a meeting of business economists, Bernanke noted that there has been some improvement in the US unemployment data, with the jobless rate falling to 8.3% in January and February from the 9% level seen for most of 2011.

But that decline in the unemployment rate could be misleading, Bernanke said, noting that “the better jobs numbers seem somewhat out of sync with the overall pace of economic expansion”.

He suggested that while the US recovery is continuing, the economy is not growing fast enough to account for all of the recent employment gains.

He said that analysis “suggests that the recent decline in the unemployment rate may reflect, at least in part, a reversal of the unusually large layoffs that occurred during late 2008 and over 2009”.

“To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses,” he said.

In other words, employers who cut their workforces to the bone during the recession have recently re-hired some laid-off workers, helping to lower the jobless rate since its recent high of 9% in October last year.

But, he suggested, now that those employers have taken back all the essential workers they need, further reductions in the US unemployment rate might not come about without a substantial upturn in consumer demand.

“Despite the recent improvement, the job market remains far from normal,” Bernanke told the economists.

“For example, the number of people working and total hours worked are still significantly below pre-crisis peaks, while the unemployment rate remains well above what most economists judge to be its long-run sustainable level,” he said.

“Of particular concern is the large number of people who have been unemployed for more than six months,” the Fed chairman said.

“Long-term unemployment is particularly costly to those directly affected, of course.  But in addition, because of its negative effects on workers’ skills and attachment to the labour force, long-term unemployment may ultimately reduce the productive capacity of our economy,” he said.

“We cannot yet be sure that the recent pace of improvement in the labour market will be sustained,” he added.

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

By: Joe Kamalick
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