November 15, 2024

Some Fed Officials Worried About Job Market

WASHINGTON — Federal Reserve officials, at their last meeting, expressed concerns that the weakening job market might hold back the economic recovery.

Fed officials said they expected the economy would pick up in the second half of the year after slowing this spring. But the outlook for both employment and inflation were unusually uncertain, given the sluggish growth and a jump in energy prices this year.

The minutes cover the Fed’s June 21-22 meeting. At that meeting, the central bank lowered its economic forecast but kept a pledge to leave interest rates at exceptionally low levels for an extended period.

“The recent deterioration in labor market conditions was a particular concern … because the prospects for job growth were seen as an important source of uncertainty in the economic outlook,” the minutes read.

Fed policymakers met shortly after the government released its May employment report. Last week, the government offered an even gloomier jobs report for June.

The economy added just 18,000 jobs last month, the fewest in nine months. And the May data were revised downward to show just 25,000 jobs added — fewer than half of what was initially reported. The unemployment rate rose to 9.2 percent, the highest rate this year.

Companies have pulled back sharply on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up with population growth. And at least twice that many jobs are needed to bring down the unemployment rate.

After last month’s meeting, the Fed said in its policy statement that the economy had slowed, in part, because of higher energy prices and supply-chain disruptions caused by the Japan earthquake and tsunami.

But at a news conference after the meeting, Fed Chairman Ben S. Bernanke acknowledged that some of the economy’s problems are more long-lasting and go beyond temporary shocks. Mr. Bernanke is scheduled to give his semiannual economic report to Congress this week.

The Fed cut its forecast for economic growth for this year to a range of 2.7 percent to 2.9 percent. It had previously expected the economy to grow 3.1 percent to 3.3 percent this year. The Fed also said unemployment would stay higher than it had expected earlier.

The economy grew at a weak 2 percent pace in the first half of this year, analysts say. It was expected to improve to a 3.2 percent pace in final six months of the year, according to an Associated Press survey of 38 economists. But the latest employment report has cast doubt on those forecasts.

The Fed stuck to its plan to bring to an end this month a program to help the economy by buying $600 billion in government bonds. The Fed also intends to keep short-term interest rates near zero “for an extended period,” a phrase it has been using the past two years. Though the central bank noted that inflation has risen, it expects that to be temporary as well.

Many economists say they don’t expect the Fed will raise interest rates until next summer at the earliest. And some think the Fed will wait until 2013, based on the weak economy.

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Fed Report Notes That Economy Continues to Improve

Economic activity in the United States continued to improve over the last month, helped by the manufacturing and retail sectors, but the disaster in Japan and higher energy prices created new uncertainty about the outlook, according to a survey of the Federal Reserve’s 12 districts released on Wednesday.

The central bank report on economic activity, called the beige book, reported a “steady improvement” in manufacturing, often including hiring, and at least 10 districts cited “slight gains” in consumer spending.

Economic improvement was mostly described as moderate by many districts, according to the data collected up until April 4.

In highlighting manufacturing and retail, the latest report was similar to one released in March, which said the economy expanded at a “modest to moderate” pace as those sectors grew in all but a few regions of the country.

The report released on Wednesday also said that labor markets in many districts showed improvement. In the Boston, Chicago, Kansas City and Richmond districts, the Fed said some companies were concerned about their ability to attract certain types of skilled workers. In the Philadelphia and Cleveland districts, meanwhile, some firms said they still said they preferred to hire temporary, rather than permanent, workers.

While it focused on the major sectors of the domestic economy, the beige book also took into account global events, like the recent earthquake, tsunami and nuclear crisis in Japan.

At least seven districts noted actual or expected disruptions to sales and production as a result of the disaster in Japan.

That included a Richmond car dealer who reported restrictions on ordering certain cars colored with paints from Japan.

March was also a month of some of the highest commodity prices since September 2008. Unrest in the Middle East also took its toll. Natural resource businesses in Atlanta reported increased uncertainty as a result on outlooks for investment and hiring, the report said.

In Dallas, many companies, especially those in high-tech manufacturing, said uncertainty about events in Japan and the Middle East would hit their business and could harm profits.

The Fed report said that Japanese tourist visits to Hawaii fell, while in Boston, manufacturers that used electronic components were concerned about supply-chain disruptions.

In Minneapolis, a logistics consulting firm noted an increase in demand because companies were adjusting to disruptions caused by the disaster in Japan.

While the report provides a roundup of economic activity, it also serves as a tool to anticipate whether there will be any changes in Fed policy.

The report said, for example, that wage pressures were described by most districts as weak or subdued and that higher commodity costs were putting increasing pressures on prices.

“Energy prices were cited most often, but raw materials in general were an increasing concern of businesses,” the report said.

The ability to pass through cost increases varied. There was generally less resistance to price increases in the manufacturing sector than there was in retail or construction, where weak demand was a limiting factor, the report said.

John Canally, an economist for LPL Financial, said that for the fourth consecutive month, the report raised some concern about pricing pressures. But he concluded that it did not appear to be enough for the Federal Open Market Committee, the policy-making arm of the Federal Reserve, to change its monetary policy later this month.

“I don’t think they are even going to signal it,” said Mr. Canally. “You need widespread wage price pressure.”

“If the trend continues the way it has continued, by June they might have enough evidence to say we are seeing wage pressures bubble up and maybe we need to start thinking about taking away some stimulus,” he said.

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