US job market still weak despite gains: Bernanke
Fed Chairman Ben Bernanke says the US job market remains weak despite three months of strong hiring and that the Federal Reserve's existing policies will help boost economic growth.
Washington: Fed Chairman Ben Bernanke says the US job market remains weak despite three months of strong hiring and that the Federal Reserve's existing policies will help boost economic growth.
Some analysts took Bernanke's cautious words about the economy — made to a group of economists in Arlington, Va. — to mean the Fed is likely to stick to its plan to hold short-term interest rates at record lows through 2014.
Though the hiring has helped support consumer confidence and incomes, "we have not seen that in a persuasive way yet," Bernanke said. The Fed needs to "remain cautious" in deciding what its next moves should be, he said.
Stocks leapt to multiyear highs and recorded one of their biggest gains of the year Monday after Bernanke's comments. The Dow Jones industrial average climbed 160 points to 13,241, its third-best showing this year. The Standard & Poor's 500 index rose 19 points to 1,416, its highest close since May 2008. The Nasdaq composite index, which is closing in on a 20 percent rally for the year, climbed 54 points to 3,122, its best finish since November 2000.
Further job gains will likely require stronger consumer and business demand, Bernanke said in his speech to the National Association for Business Economics spring conference.
The association includes about 2,500 economists for corporations, universities, the government and trade associations. Each year, it meets in the spring and fall. Bernanke, addressing the group for the first time since 2008, attracted about 600 participants — a record for a spring conference.
After he spoke, the Dow Jones industrial average surged and finished up 160 points, its third-biggest gain of the year. Broader indexes also gained.
The gains in hiring since December had led some economists to predict that the Fed might consider raising rates earlier than it planned. But many took Bernanke's cautious tone Monday as a firmer commitment to the late-2014 timetable.
And some viewed the speech as a signal that the Fed might take further steps, if the economy falters, to try to further drive down long-term borrowing rates. The goal would be to encourage more spending by consumers and businesses.
Robert Dye, chief economist at Dallas-based Comerica bank, said the Fed might extend a program of shuffling its investment portfolio to shift more of its holdings into long-term Treasurys. That could help lower long-term rates. Or the Fed could launch another round of bond-buying.
"The chairman is very much keeping additional monetary policy options on the table," said Dye, who attended the NABE conference.
Employers added an average of 245,000 jobs a month from December through February. The unemployment rate has fallen nearly a full percentage point since summer, to 8.3 percent.
Still, the economy grew at an annual pace of just 3 percent in the October-December quarter. And economists think growth has slowed in the January-March quarter to around a 2 percent annual rate.
Bernanke said the combination of modest economic growth and rapid declines in unemployment is something of a puzzle. Normally, it takes growth of roughly 4 percent annual growth to lower the rate by 1 percentage point over a year.
He offered some reasons for the unexpected decline in unemployment. Employers may be hiring rapidly because they cut too many jobs during the recession. He also said that government revisions may later show stronger economic growth over the past year.
But Bernanke cautioned that he doesn't expect the unemployment rate to keep falling at its current pace without much stronger growth and more robust hiring. He noted that the rate is still roughly 3 percentage points more than its average over the 20 years preceding the recession.
"Despite the recent improvement, the job market remains far from normal," Bernanke said. "The number of people working and total hours worked are still significantly below pre-crisis peaks."
He also expressed concerns about millions who have been out of work for more than six months. Those long-term unemployed Americans have made up more than 40 percent of the unemployed since December, he noted. By contrast, in the severe 1981-82 recession, long-term unemployment never exceeded 25 percent.
"Long-term unemployment is particularly costly to those directly affected, of course," Bernanke said. "But in addition, because of its negative effects on workers' skills and attachment to the labor force, long-term unemployment may ultimately reduce the productive capacity of our economy."
The Fed is concerned that the recovery could falter, as it did last year. Americans aren't receiving meaningful pay increases. Gas prices are high. And Europe's debt crisis could weigh on the US economy.
As long as inflation remains tame, analysts think the Fed will likely hold interest rates down to give the economy more support. Most economists don't think Fed officials will change their interest-rate policy at their next meeting on April 24-25 and will ease credit only if the economy slows further.
"The clear tone of Chairman Bernanke's statement is that he is defending the Fed's current highly accommodative position," said David Jones, chief economist at DMJ Advisors.