Federal Reserve Chairman Ben Bernanke offered a robust defense of the effectiveness of the central bank’s easy-money policies in his speech Friday at the Fed conference here, and left little doubt that he is looking toward doing more to give the economy a lift at the Fed’s next policy meeting in September.
As reported by the Wall Street Journal, Bernanke also flagged deep worries about the pace of the economic recovery, calling it “far from satisfactory” and cited concerns about the jobs market’s weak growth in his speech at the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyo.
Some market participants have been wondering if a run of moderately better economic data of late has changed the Fed’s thinking about the economy. Bernanke left little doubt that he is still deeply dissatisfied with the outlook
He dwelled on stagnation in the labor market, describing high unemployment as a “grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for years.” Moreover, he said, “it is important to achieve further progress, particularly in the labor market.”
Importantly, the Fed chairman also said the job market’s weakness, to date at least, is the result of cyclical problems in the economy—that is, a lack of demand—and not structural ones, such as a mismatch between the skills people have and the skills employers are looking for.
The Fed feels it can help on cyclical problems, but not structural ones. In other words, this is a situation where the Fed feels it can do something. Bernanke also included his “no panacea” caveat: He would love fiscal policy makers to take actions to support the economy and address long-run deficits. But he doesn’t seem to see that as justification for inaction on his front.
The focus on labor-market stagnation is critical. The Fed has a dual mandate imposed by Congress to achieve price stability and maximum sustainable employment. Bernanke played down inflation risks, saying inflation has remained near 2%, “despite repeated warnings that excessive policy accommodation would ignite inflation.” With inflation stable and unemployment unsatisfactorily high, Bernanke in effect laid out his legal argument for pressing harder on the monetary gas pedal.
The managing director of an economic development firm believes many Indiana companies are holding back on expansion plans until a clear direction comes out of Washington.
According to a report by Inside INdiana Business, Ginovus Managing Director Larry Gigerich says many of his company’s clients plan to “tred water” for the next 15 months, unless the federal government gets a handle on spending and concerns about the tax code. He says there was plenty of economic activity roughly one year ago in the state, but the brakes hit this past spring.
Gigerich says several factors have gone into the slowing of economic development deals including the debt ceiling debate and global factors including softening of some European economies the earthquake and tsunami in Japan.
Even though Indiana continues to hold its own in several national rankings, he says there is clearly a slowdown in the state and the rest of the country.
Gigerich says the Hoosier state has benefited from this year’s hike in corporate and personal income taxes in Illinois. Some companies have moved across the state line and those of those that stayed did so because Illinois ended up writing “huge checks.”
The latest RBC consumer outlook suggests that Canadians are keeping a tighter rein on their cash this summer as they deal with ever higher food and gasoline prices.
According to the Canadian Press, RBC polled more than 4,000 people across Canada to get a sense of how they are coping with the greater strain on their finances at the pumps and the grocery store.
According to the bank, Canadians are principally doing three things to keep a lid on their spending:
• 55% of respondents said they are doing more comparison shopping for their food.
• 48% said they are following a budget more and making fewer impulse purchases.
• 29% said they are using their vehicles less, choosing to take public transit or walk more often.
This week, Bank of Canada Governor Mark Carney warned that food is likely to remain relatively expensive, and get even more so, in the coming months.
The poll’s findings, said RBC vice president Richard Goydner, prove Canadians are heeding that message.
“Canadians are very wisely responding to increases in prices by being more careful on how they spend that money,” Goydner told CTV News.
Gas prices also remain a frustration for Canadian motorists, with the price at the pumps jumping by 29.5% in the month of May alone. Food prices climbed 4.2% during the same month.
The RBC survey also found that about one-third of Canadians are holding back on selected big purchases at the moment, including vacations and new vehicles, including RVs.
Thirty-one percent of those surveyed said they were hanging onto their existing vehicle longer than they had anticipated, while delaying purchase of a replacement.
And 30% of respondents said they planned to put off their vacation plans until next year.
Joanne MacDonald told CTV News that her family is planning on going deep-sea fishing rather than a more lavish holiday this summer.
“We normally travel, go cross-country and things like that,” MacDonald said. “But we’re going to stay around, stay around home.”
The only exception to the belt-tightening is in oil-rich Alberta, where local car dealerships are still doing brisk business.
“We’re busy,” said Martin Speiran, a sales advisor at South Centre Porsche in Calgary. “The problem is product. Porsche Germany cannot just give us enough cars.”
Despite the overall belt-tightening, the optimism in Alberta does appear to be spilling over into other provinces. Nearly four in 10 people believed their personal financial situation would improve next year, while slightly more (42%) predicted improvement in the national economy during the same time period.
Canadians also told RBC that they estimated they are carrying an average $13,058 in personal debt, with only 30% of respondents saying they felt confident they were managing their debts well.
The RBC consumer outlook surveyed 4,008 people between June 9 and June 14, 2011. The results are considered accurate to within 1.65 percentage points, 19 times out of 20.
The unemployment rate rose and the economy added far fewer jobs than anticipated in June, confirming fears that an economic slump has taken hold and further dashing hopes that a powerful recovery will be soon forthcoming.
The Huffington Post reported that only 18,000 jobs were added to the American economy in June — a blow to Wall Street expectations, which had estimated between 90,000 and 140,000 added jobs — and the unemployment rate rose to 9.2%, according to the Bureau of Labor Statistics monthly employment report.
“Clearly it’s a disappointing number,” said Bernard Baumohl, chief global economist at The Economic Outlook Group. “We thought that too many people were far too optimistic. There are just too many factors that are really creating downward pressure on new job growth, among which is the simple fact that the U.S. economy has slowed markedly from late last year.”
“Companies are focused — laser focused — on keeping their costs down,” Baumohl added. “And that means that they are not in a mood to hire unless there is a genuine reason to do so.”
May’s employment numbers were also revised downward on Friday, suggesting that this is more than just one month’s bad numbers. The unemployment rate rose to 9.1% in May and only 25,000 jobs were added to the U.S. economy, cutting the 54,000 added jobs the Bureau’s June report had estimated in half. Labor experts say a bare minimum of 125,000 jobs must be added each month simply to keep up with population growth.
Average hourly earnings for all private sector employees decreased in June by 1 cent to $22.99 and the average workweek decreased by .1 hour to 34.3. Meanwhile, more Americans gave up looking for work altogether, as the labor force participation rate fell to a 27 ear low of 64.1%.
As Capital Economics chief US Economist Paul Ashworth put it: “June’s U.S. employment report doesn’t have a single redeeming feature. It’s awful from start to finish.”
More than 90% of economists predict the recession will end this year, although the recovery is likely to be bumpy, according to the Associated Press.
That assessment came from leading forecasters in a survey by the National Association for Business Economics (NABE) to be released today (May 27). It is generally in line with the outlook from Federal Reserve Chairman Ben Bernanke and his colleagues.
About 74% of the forecasters expect the recession — which started in December 2007 and is the longest since World War II — to end in the third quarter. Another 19% predict the turning point will come in the final three months of this year, and the remaining 7% believe the recession will end in the first quarter of 2010.
“While the overall tone remains soft, there are emerging signs that the economy is stabilizing,” said NABE President Chris Varvares, head of Macroeconomic Advisers. “The economic recovery is likely to be considerably more moderate than those typically experienced following steep declines.”
One of the major forces that plunged the economy into a recession was the financial crisis that struck with force last fall and was the worst since the 1930s. Economists say recoveries after financial crises tend to be slower.
Against that backdrop, unemployment will climb this year even if the economy is rebounding, the NABE forecasters predict. Companies won’t be in a rush to hire until they feel certain any recovery is firmly rooted.
For all of this year, the forecasters said the unemployment rate should average 9.1%, a big jump from 5.8% last year and up from its current quarter-century peak of 8.9%. If NABE forecasters are right, it would be the highest since a 9.6%t rate in 1983, when the country was struggling to recover from a severe recession.
Some forecasters thought the unemployment rate could rise as high as 10.7% in the second quarter of next year. The NABE outlook from 45 economists was conducted April 27 through May 11.
General Motors Corp., chemical company DuPont and Clear Channel Communications Inc. were among the companies announcing mass layoffs during the survey period.
With joblessness rising, consumers — major shapers of overall economic activity — likely will stay cautious, making for a tepid turnaround. And given the big bite the recession has taken out of household wealth, notably the values of homes and investment portfolios, consumers probably will stay subdued for some time.
Seventy-one percent of the forecasters believe a more-thrifty consumer will be around for at least the next five years.
Americans’ personal savings rate edged up to 4.2% in March, marking the first time in a decade that the savings rate has been above 4% for three straight months.
Even as the NABE forecasters believe the country will emerge from recession later this year, they also predict the economy’s overall performance in 2009 will be rotten.
The economy should contract by 2.8% this year, the forecasters said in updated projections. That’s worse than the 1.9% drop they forecast in late February. If they are right, it would mark the worst annual contraction since 1946, when economic activity fell by 11%.
Still, the forecasters believe the worst is already behind the country in terms of lost economic activity.
The economy shrank at a 6.1% annualized pace in the first three months of this year, on top of a 6.3% decline in the final three months of last year, the worst six-month performance in 50 years.
For the current April-June quarter, the NABE forecasters believe the economy will shrink at a pace of 1.8%. After that, the economy should start growing again — at a 0.7% pace in the third quarter and a 1.8% pace in the fourth quarter.
NABE’s growth projections for the third and fourth quarters are lower than those made in late February. The downgrade was based on the expectation that businesses, whose profits and sales were hit hard by the recession, will remain wary of ramping up investment.
President Barack Obama’s $787 billion stimulus package of increased government spending and tax cuts, near-zero interest rates ordered by the Fed and government programs to get banks to lend more freely again all factor into the expected economic revival.
Many forecasters also predict that home sales will hit bottom by the middle of this year, another stabilizing factor for the economy. A report on sales of previously owned homes will be released today, and data on new-home sales is due Thursday.
Next year, the economy should grow by 2%, the forecasters said. That was lower than the 2.4% growth projected in February.
With a lethargic recovery expected, forecasters predict the Fed won’t start boosting interest rates until the second quarter of next year.
Because Fed policymakers expect credit and financial problems to ebb slowly, “the pace of the recovery would continue to be damped in 2010,” they said last week.