WASHINGTON (CN) – The economic recovery will be slow but steady, Federal Reserve Chairman Ben Bernanke said Monday while refusing to make a similar prognosis for the job market. “The best thing we can say about the labor market right now is that it may be getting worse more slowly,” Bernanke said. “Jobs are likely to remain scarce for some time,” he said, as “net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force.”
Speaking at the Economic Club in New York City, Bernanke predicted that last quarter’s estimated 3.5 percent economic expansion will continue. “The recent pickup reflects more than purely temporary factors and continued growth next year is likely,” he said.
Many are critical that the economy is on the road to continued growth, and that stimulus efforts – such as the “cash for clunkers” program that is credited with nearly half of last quarter’s economic expansion – give a false sense of optimism that the market soon will recover on its own.
Despite his prediction of growth, Bernanke blamed constrained lending and the weak job market – what seemed his two primary concerns – for the recovery’s slow pace.
Since the start of the recession at the end of 2007, about 8 million Americans have lost their jobs, more than doubling the unemployment rate to 10.2 percent, and the average workweek for nonsupervisory workers has fallen to 33 hours. All the numbers are the worst since World War II.
Many companies will be reluctant to hire new workers because they will first make full time employees out of those who they had cut to part-time during the recession, because of the high costs associated with hiring and training, and because of a recent increase in productivity of their existing workers, Bernanke said.
On his other worry, restricted lending, Bernanke said, “Unfortunately, reduced bank lending may well slow the recovery by damping consumer spending, especially on durable goods, and by restricting the ability of some firms to finance their operations,” he said, but added that there has also been a decrease in demand for credit so the impact of reduced credit may be smaller than one would assume simply by looking at the reluctance of banks.
Despite the largely bleak outlook, Bernanke commended the “instrumental” stimulus efforts by the government, which he credited with bringing the financial system back from the brink.
“The stabilization of financial markets and the gradual restoration of confidence are in turn helping to provide a necessary foundation for economic recovery,” he said.
At the end of his speech, Bernanke also addressed the dwindling value of the dollar, entering into the jurisdiction of the Treasury Department. While he rejected worries about inflation, Bernanke said that the Fed will be watching the dollar’s value closely to ensure that it will be ready to act if need be.