Pain of the Jobless Belies Rosier Economic Outlook From Bernanke

The U.S. economy is doing better -- unless you're out of work or worry about the cost of buying gasoline and putting food on your table.

That was an unspoken bottom line of Federal Reserve Chairman Ben Bernanke's speech today at the National Press Club in Washington, where he asserted that the U.S. economic recovery is back on track and that the emergency measures taken by the Fed are working.

"Overall," Bernanke said, "improving household and business confidence, accommodative monetary policy, and more-supportive financial conditions, including an apparent increase in the willingness of banks to make loans, seems likely to lead to a more rapid pace of economic recovery in 2011 than we saw last year."

The Fed chief pointed to a pickup in household spending in recent months and robust growth in businesses' appetite for new equipment and software as evidence of a self-sustaining recovery.

He also argued that the strengthening stock markets and lower borrowing costs for companies that issue bonds paint a picture that "lends credence" to the view that the Fed's decision in November to pump $600 billion into the economy is "providing significant support to job creation and the economy."

But Bernanke acknowledged that "the job market has improved only slowly," and that the gains in private-sector employment last year -- following the loss of about 8 1/2 million jobs in 2008 and 2009 -- "were barely sufficient to accommodate the inflow of recent graduates and other new entrants to the labor force and, therefore, not enough to significantly reduce the overall unemployment rate."

Still, he cited recent "grounds for optimism on the employment front," and in particular a downward trend in the first-time claims for unemployment insurance that are reported each week by the Labor Department.

Later, during a question-and-answer session with reporters, Bernanke even called the jobless-claims report out today "good news" and "a pretty good number."

The government said today that the seasonally adjusted total of new claims for unemployment insurance last week came to 415,000, down 42,000 from the previous week's revised figure of 457,000.

That does seem like part of a pretty good trend -- until you look at the department's history of very often revising the numbers upward by the time the next week's figures come out.

With some exceptions, the weekly jobless claims numbers have been falling lately but only in comparison with the previous week. And the numbers out this week -- almost certain to be worse once they, too, are revised -- are worse than they were in November.

In fact, the jobless claims numbers aren't much better than last year. Economists generally associate weekly jobless claims levels much closer to 300,000 with a healthy hiring environment.

To be fair, Bernanke noted that employers are "reportedly still reluctant to add to their payrolls" and that "it will be several years before the unemployment rate has returned to a more normal level."

Friday's monthly report from the government on U.S. payrolls and employment will probably provide a more accurate picture of where the labor market is heading.

Bernanke also reiterated that inflation remains tame, which allows the Fed -- which tries to balance dual goals of maximum sustainable employment and stable prices -- to keep monetary policy loose and the cost of borrowing cheap.

Despite "significant increases in some highly visible prices, notably for gasoline," and rising costs for food and other commodities, "overall inflation remains quite low," he said.

The Fed's favorite inflation gauge -- a price index compiled by the Commerce Department that tracks the costs of things Americans are buying but strips out volatile food and energy costs -- rose by just 0.7 percent in 2010, Bernanke noted. That's awfully low and compares with a rise of about 2.5 percent in 2007, the year before the recession began.

But that core inflation number excludes purchases that are a big part of Americans' lives. The core inflation number showed a difference of zero percent in prices between November and December. But energy costs -- the gas Americans put in their cars and fuel they use to heat their homes -- rose 4.7 percent over the month.

The rising cost of oil in reaction to the unrest in Egypt -- which isn't affecting petroleum supply so far but is spooking the markets -- could make that surge in energy prices accelerate.

Asked about Egypt, Bernanke said the Fed is paying close attention to the rising cost of oil and other commodities, acknowledging that higher energy prices "affect daily life" but also feed into other prices, since companies must pass on their own costs to their customers.

"We have to guard against that," he said.