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Bernanke Acknowledges Economic Recovery Going Slowly

posted on June 23, 2011

Hello, I'm Mark Pearson. Government and private reports this week revealed more problems in the beleaguered housing sector.

According to the National Association of Realtors, sales of previously owned homes declined nearly 4 percent in May to a seasonally adjusted annual rate of 4.8 million units. Compounding the problem, NEW home sales fell 2.1 percent last month to a seasonally adjusted annual rate of 319,000 units... That's less than half the 700,000 annual home sales economists say are needed to sustain a healthy housing market.

And the Labor Department reports the number of people applying for initial unemployment benefits last week, rose at its fastest pace in a month, signaling further weakness in the all-important job market.

Historically, unemployment lags well behind other sectors of the economy during recoveries. Analysts, however, say housing currently owns the dubious honor of being the weakest part of the U.S. economy.

Officially, the recession ENDED two years ago, but new home sales have fallen 18 percent since June of 2009. And despite interest rates hovering at - or near -- record lows; and other fiscal policies designed to stimulate mortgage lending, 2010 was the worst for new home sales on records dating back half a century. This week, Fed Chairman Ben Bernanke acknowledged things were -- and are -- worse than he originally believed.

Bernanke Acknowledges Economic Recovery Going Slowly

Though high gasoline prices and the disaster in Japan appeared to be major roadblocks to a stronger economic recovery, the Federal Reserve Board listed these as temporary barriers. This week though Fed Chairman Ben Bernanke expressed reservations.

Ben Bernanke, Chairman, Federal Reserve Board: "Maybe some of the headwinds that are concerning us, like weakness in the financial sector, problems in the housing sector balance sheet and deleveraging issues were stronger and more persistent than we thought."

Bernanke now believes the depressed housing market is a strong and persistent factor hurting the broader economy. And he said a glut of home foreclosures must be cleared from the pipeline for the market to gain strength.

The Federal Reserve announced this week it will finish buying $600 billion in treasury bonds completing its plan to inject cash into the U.S. economy as scheduled on June 30. Known as "quantitative easing," the Fed's purchase of private bank securities essentially amounts to printing more money. Fiscal policy makers hope the increased money supply will spur businesses to expand inventories and convince consumers to purchase homes.

While no further austerity measures were announced the Fed's Board of Governors still plans on holding interest rates near zero for the foreseeable future. Economists believe low interest rates encourage businesses to make investments and create incentive for consumers to purchase homes. But the low rates have failed to boost home sales which fell in May to the lowest level in six months. And despite low prices, retail sales also have failed to increase nearly as much as hoped.

Central bank officials believe unemployment will decline as the pace of the recovery picks up in the months ahead. Nevertheless, the Fed now faces the problem of renewed jitters that the financial crisis in Greece could spread to other heavily indebted European nations sending shockwaves through global financial markets.


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