In what has become a familiar refrain from the chairman of the Federal Reserve, Ben S. Bernanke described the economic recovery Thursday as “frustratingly slow” and said that “significant headwinds” face consumers and the broader economy.
In his first public exchange with Congress this year, Bernanke told members of the House Budget Committee that while the economy has been improving recently -- with consumer spending, manufacturing and job growth up in recent months -- the outlook remains uncertain.
He said a big question is the ability of households to spend, given their stagnant incomes and wealth, tight credit access and historically low consumer sentiment. Consumer spending accounts for about 70% of U.S. economic activity.
Data suggest consumers pulled back a bit in December, and their future spending will depend largely on the job market, as Bernanke said Thursday. The government on Friday will report the latest unemployment rate and job numbers for January.
The pace of business spending has slowed recently as well, in part because of concerns in Europe, but Bernanke said there are signs that business confidence was improving. And should that continue, he said, companies are well positioned financially to increase both spending and hiring.
Bernanke also urged lawmakers to take steps to put the U.S. deficits and budget situation on a sustainable path or else face serious economic consequences.
He pointed out that the nation’s federal deficit has averaged 9% of gross domestic product -- the value of all goods and services produced -- over the last three fiscal years and that a continuing high level of government debt would reduce productivity growth and subject the nation to greater indebtedness to foreign countries as well as risks of economic shocks.
At the same time, Bernanke repeated that it was important for policymakers not to make spending and tax policies that would hurt the current economic recovery. And he urged lawmakers to get past the political divisions to solve the long-term debt problems.
“I realize politics is a tough game,” he said, but it’s important to show “cooperation and collaboration” in addressing the nation’s large debts.