Federal Reserve Bank of Cleveland President Sandra Pianalto said the recent drop in the unemployment rate is not a sign of a rebounding job market.
“Unemployment rates have declined a bit recently, but job creation remains anemic, as businesses have been cautious in expanding their payrolls,” Pianalto said in a speech today in Akron, Ohio.
“Simply put, it will take a long time to recover the many millions of jobs we have lost,” Pianalto said at the annual meeting of the Women’s Boards of Summa Health System.
Chairman Ben S. Bernanke and the Federal Open Market Committee are waiting for further proof of a durable pickup in the job market as they press forward with their plan to buy $600 billion in Treasury securities to boost the pace of recovery. In its Jan. 26 statement, the committee said the recovery “has been insufficient to bring about a significant improvement in labor market conditions.”
The Labor Department said on Feb. 4 the economy added 36,000 jobs in January, less than expected. The unemployment rate fell to 9 percent in January from 9.4 percent in December and 9.8 percent in November. The unemployment rate has been at or above 9 percent for 21 months.
“We are seeing signs that the overall economy is gradually improving. Manufacturing continues to expand, export activity has risen, and companies are investing in equipment again,” Pianalto said. “Consumer spending also finished on a positive note last year.”
Less Than Forecast
Sales at U.S. retailers rose less than forecast in January, depressed by a drop in demand at building material stores and restaurants that may reflect the influence of harsh winter weather. Purchases increased 0.3 percent, the smallest gain since a drop in June and followed a 0.5 percent December gain that was less than previously estimated, Commerce Department figures showed today in Washington.
“We are still facing some headwinds. In particular, the housing market remains depressed, which weakens household balance sheets,” Pianalto said. “I expect that the pace of economic growth for this year will continue to be moderate.”
The economy will grow 3.2 percent in 2011, according to the median of a Bloomberg Survey, as consumers emerge from the recession with lower debt burdens.
“We appear to be entering a gradual convalescence, as delinquencies begin to subside and some households begin to expand their borrowing again,” New York Fed President William Dudley said in New York yesterday.
Consumer indebtedness totaled $11.4 trillion at the end of December, down $155 billion, or 1.3 percent, from the end of September, according to the New York Fed’s quarterly report on household debt and credit, released yesterday. Consumers have reduced about $1.08 trillion of their debt since the peak in the third quarter of 2008.
Pianalto devoted a third of her speech to research at the Cleveland Fed into income growth. “The two main drivers of income growth in a region are education and innovation,” she said. “States with a more educated workforce, and states with high rates of innovation, saw their incomes grow significantly faster over long periods of time.”
International competition has increased and the rate of growth in skilled workers has slowed, Pianalto said, calling it a “troublesome” trend.
“In the past, skilled workers had been relatively insulated from this competition, but this is less true today. The number of skilled workers in other countries who will compete with workers in some middle- and higher-skilled occupations in the United States is growing,” she said.
In response to audience questions, Pianalto said other changes would help U.S. growth, “we can improve our regulatory structure, we can improve our tax structure.”
She said the productivity of the workforce, driven by innovation and education, was ultimately most important. “The more productive your workforce is the more you’re going to improve your standard of living,” she said.
Pianalto, 56, became president of the Cleveland Fed in 2003. She is not a voting member of the FOMC this year and has never dissented from a FOMC decision. Fed presidents rotate voting on monetary policy, with Pianalto voting every other year.