Yellen’s read on the US economy, from jobs to inflation
A speech to The World Affairs Council of Philadelphia, Philadelphia, Pennsylvania on Monday, US Federal Reserve Chair Janet Yellen shared her assessment of the economy.
Among the uncertainties she noted in her speech:
THE JOB MARKET
Yellen called Friday's jobs report for May “concerning.'' Employers added just 38,000 jobs in May, the weakest monthly gain in more than five years. Job gains have now averaged just 116,000 in the past three months, down sharply from an average of 230,000 in the 12 months ending in April.
But Yellen noted that other gauges of the job market, such as fewer applications for unemployment benefits, have been more positive. She said the Fed would be studying whether Friday's jobs report marked a temporary slump or signaled more lasting troubles.
DOMESTIC DEMAND.
While the U.S. economy has been outperforming the rest of the world, its growth has depended on domestic demand, especially its main fuel _ consumer spending. Yellen said a key question is whether U.S. demand can remain strong “amid fairly considerable global bumpiness.'' She said a particular concern is weakness in investment spending by U.S. companies, a slowdown that she said she thinks will prove temporary.
GLOBAL PRESSURES
Many of the financial stresses from abroad that erupted early this year have eased. But Yellen cautioned that there is still cause for concern, particularly from China. China is straining to rebalance its economy, the world's second-largest, away from export-led growth to more domestic demand. At a time of sluggish global growth, low inflation and ultra-low interest rates, investor sentiment could shift very quickly. Yellen said a particular worry is a negative reaction if British voters decide to leave the European Union in a June 23 vote.
WEAK PRODUCTIVITY
Even as the job market has strengthened, overall economic growth, as measured by the gross domestic product, has been tepid. In part, Yellen said, that's because productivity has been so weak. Productivity _ the amount of output per hour of work _ is a vital factor supporting rising living standards. Yellen noted that economists are divided over whether the productivity slowdown will soon end. The Great Recession, the Fed chair said, depressed spending on the research and development needed for future productivity growth. Once this spending rebounds, she said, productivity gains could accelerate.
TOO-LOW INFLATION
Oil prices have stopped falling, and the dollar has stopped rising _ good signs for higher inflation. A price gauge favored by the Fed has shown inflation running below its 2 percent target for four years. Yellen said one reason for concern is that some surveys of long-term inflation expectations by consumers and businesses have declined. If that trend deepens, she said, it could make it harder for inflation to reach the Fed's target.
When inflation remains too low, it can depress spending, hold back growth and make the cost of loans more burdensome.
Reference: AP
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