- The Washington Times - Tuesday, November 17, 2009

Federal Reserve Chairman Ben S. Bernanke said the “head winds” of reduced bank lending and a weak job market will restrain the pace of the nation’s recovery from the longest, deepest economic downturn in seven decades.

The unemployment rate, which reached 10.2 percent in October and is expected to climb higher, “will decline only slowly if economic growth remains moderate, as I expect,” Mr. Bernanke said Monday in a speech at the Economic Club of New York.

Mr. Bernanke also said inflation will likely remain subdued for some time.

Given his expectations of moderate economic growth and low inflation, Mr. Bernanke repeated the Fed’s projection that “exceptionally low levels” of short-term interest rates will remain in effect “for an extended period.”

Mr. Bernanke delivered his outlook after the Commerce Department reported that retail sales, buttressed by a rebound at auto dealers, increased more than expected in October. But the 1.4 percent gain followed a big downward revision for September - from a decline of 1.5 percent to a drop of 2.3 percent.

Sales last month fell at many retail outlets, including furniture stores, electronics and appliance stores and building-material dealers. Economists say that consumer spending remains under pressure.

“Fundamentally, conditions remain poor for consumers, and spending will be limited,” said Scott Hoyt of Moody’s Economy.com. He noted that household wealth has declined substantially during this recession, and wage income is 5 percent below year-ago levels.

Mr. Bernanke offered an especially gloomy assessment of the labor market.

“Both the decline in jobs and the increase in the unemployment rate have been more severe than in any other recession since World War II,” he said. The unemployment rate, for example, has jumped from less than 5 percent to more than 10 percent. During the 1981-82 recession, the jobless rate increased from 7.2 percent to 10.8 percent.

In the private sector, 8.2 million jobs, or more than 7 percent, have been lost since the recession began in December 2007. During the 1981-82 recession, 3.5 percent of private-sector jobs were lost.

The Fed chairman noted that the unemployment rate for men between the ages of 25 and 54 has jumped from less than 4 percent in late 2007 to 10.3 percent in October. For people between the ages of 16 and 24, the jobless rate is now 19 percent. For black youths, it is about 30 percent, he said.

“The number of part-time workers who report that they want a full-time job but cannot find one has more than doubled since the recession began, a much larger increase than in previous deep recessions,” Mr. Bernanke said. Meanwhile, the average workweek for production and nonsupervisory workers has fallen to 33 hours, the lowest level in the postwar period.

Before employers begin hiring new workers, they will raise the hours of current workers, economists say, leading to a jobless recovery.

Limited credit, which has hit small businesses the hardest, will also hinder job growth, said Mr. Bernanke, who noted that smaller businesses “account for a significant portion of net employment gains during recoveries.”

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