In a speech before a congressional committee this morning, Federal reserve Chairman Ben Bernanke warned that it could take years before unemployment falls to normalized levels, thus justifying the continuing need for the central bank’s $600-billion bond-buying scheme
Although Bernanke made some sanguine comments about the U.S. economy this year (“moderately stronger” growth) and what he calls evidence of a “self-sustaining” recovery, he still thinks that unemployment might not fall to the historically normal rate of 6 percent for another four or five years.
Bernanke explained that “after the loss of nearly 8.5 million jobs in 2008 and 2009, private payrolls expanded at an average of only about 100,000 per month in 2010 -- a pace barely enough to accommodate the normal increase in the labor force and, therefore, insufficient to materially reduce the unemployment rate.”
After Bernanke’s speech, the Bureau of Labor Statistics reported that employees created 103,000 jobs in December, well below expectations for about 150,000 new positions.
“[With] employers reportedly still reluctant to add to payrolls, considerable time likely will be required before the unemployment rate has returned to a more normal level, the Fed boss said.
Bernanke noted that the FOMC expected the unemployment rate to be at around 8 percent two years from now. At that rate of improvement, it could take “four to five more years” for the job market to normalize fully.
Persistently high unemployment, by damping household income and confidence could threaten the strength and sustainability of the recovery, he said.
Moreover, roughly 40 percent of the unemployed have been out of work for six months or more. Long-term unemployment not only imposes exceptional hardships on the jobless and their families, but it also erodes the skills of those workers and may inflict lasting damage on their employment and earnings prospects.”
Douglas C. Borthwick, managing director at Faros Trading in Stamford, Conn., commented that in tandem with Bernanke’s warnings about the job market, last week S&P warned that it will take 44 months to clear all the distressed homes in inventory before housing can normalize.
“With 3.6 years for housing and 4-5 years for jobs normalization (and we think these estimates are generous) the US is truly only a few years into its lost decade.”