In a moment of unexpected and unsettling candor, Federal Reserve chairman Ben Bernanke, in his testimony on Tuesday before the House Financial Services Committee, said that he really doesn’t know what’s happening to the economy. In his best professorial manner and without blinking an eye, the chairman said, “In light of somewhat different signals received recently from the labor market than from indicators of final demand and production…it will be especially important to evaluate incoming information to assess the underlying pace of the economic recovery.”
Admitting that the labor market is “far from normal” made it clear that he was uncertain about what “normal” actually means. With the same number of people working (about 130 million) today as were working 10 years ago (with a much smaller population) the new normal may be different from whatever the chairman might perceive it to be. Part of the problem is in the counting and part is in the vast technological improvements that have permanently replaced low-level workers.
When it comes to counting, the Bureau of Labor Statistics has difficulty in keeping score, noting two primary indicators of unemployment: U3 and U6. U3 is more politically palatable as it is lower than U6. U6 may be more realistic, however, as it counts not only people out of work but also those working part-time who would rather be working fulltime, along with those discouraged and not looking at all.
Despite being unsure of what all the “somewhat different signals” really mean, Bernanke was ready to predict the future: “With output growth in 2012 projected to remain close to its longer-run trend [a weak 2.3- to 2.6-percent annual growth in the economy], FOMC (Federal Open Market Committee which Bernanke chairs and rules] does not anticipate further substantial declines in the unemployment rate over the course of the year.”
He also predicted that despite the enormous bout of monetary stimulus employed allegedly to reinvigorate the moribund economy, inflation would