Bernanke argues that the headwinds to economic growth that dominated his second four-year term in office are now abating and growth could pick up.
Mainly Quotes, Predictions and Explanation from Bernanke
The encouraging news is that the headwinds I have mentioned may now be abating. Near-term fiscal policy at the federal level remains restrictive, but the degree of restraint on economic growth seems likely to lessen somewhat in 2014 and even more so in 2015; meanwhile, the budgetary situations of state and local governments have improved, reducing the need for further sharp cuts. The aftereffects of the housing bust also appear to have waned. For example, notwithstanding the effects of somewhat higher mortgage rates, house prices have rebounded, with one consequence being that the number of homeowners with "underwater" mortgages has dropped significantly, as have foreclosures and mortgage delinquencies. Household balance sheets have strengthened considerably, with wealth and income rising and the household debt-service burden at its lowest level in decades. Partly as a result of households' improved finances, lending standards to households are showing signs of easing, though potential mortgage borrowers still face impediments. Businesses, especially larger ones, are also in good financial shape. The combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters. But, of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts.
What about the rest of the world? The U.S. recovery appears to be somewhat ahead of those of most other advanced industrial economies; for example, real GDP is still slightly below its pre-recession peak in Japan and remains 2 percent and 3 percent below pre-recession peaks in the United Kingdom and the euro area, respectively. Nevertheless, I see some grounds for cautious optimism abroad as well. As in the United States, central banks in other advanced economies have taken significant steps to strengthen financial systems and to provide policy accommodation.
Mystery of wages lagging productivity growth solved. Recalc shows Productivity Growth was weaker too
Worker productivity growth has been below 2% in five of the past seven years after a long-run above 3%.
“Disappointing productivity growth,” Bernanke said, “must be added to the list of reasons that economic growth has been slower than hoped.” Unlike the other reasons—the faltering Euro, for instance, or ill-timed state and federal spending cuts—weak productivity growth was an unknown factor until this past November, when earlier data were recalculated—“an illustration,” Bernanke said, “of the frustrations of real-time policymaking.”
Because of weak productivity growth—that is, weak growth in output per worker per hour—Gross Domestic Product is about 7% below where it should be, according to Fed economists.
Until the recent data revision, productivity growth was one of the long-term bright spots in the economy. After tanking between 1973 and 1995, productivity growth rebounded to levels comparable to the booming post-World War II years, probably because of efficiencies generated by the World Wide Web. Nobody worried that productivity growth was too slow; instead, many worried that median income growth wasn’t keeping up with productivity growth, as it had during the postwar boom. (Indeed, in almost every year since 1999, pre-tax median household income has been declining.)
Rising productivity growth unaccompanied by a comparable rise in incomes for the typical American family is a problem. But slackening productivity growth creates a different problem: it limits the extent to which, even theoretically, wages can rise.
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Mainly Quotes, Predictions and Explanation from Bernanke
The encouraging news is that the headwinds I have mentioned may now be abating. Near-term fiscal policy at the federal level remains restrictive, but the degree of restraint on economic growth seems likely to lessen somewhat in 2014 and even more so in 2015; meanwhile, the budgetary situations of state and local governments have improved, reducing the need for further sharp cuts. The aftereffects of the housing bust also appear to have waned. For example, notwithstanding the effects of somewhat higher mortgage rates, house prices have rebounded, with one consequence being that the number of homeowners with "underwater" mortgages has dropped significantly, as have foreclosures and mortgage delinquencies. Household balance sheets have strengthened considerably, with wealth and income rising and the household debt-service burden at its lowest level in decades. Partly as a result of households' improved finances, lending standards to households are showing signs of easing, though potential mortgage borrowers still face impediments. Businesses, especially larger ones, are also in good financial shape. The combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters. But, of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts.
What about the rest of the world? The U.S. recovery appears to be somewhat ahead of those of most other advanced industrial economies; for example, real GDP is still slightly below its pre-recession peak in Japan and remains 2 percent and 3 percent below pre-recession peaks in the United Kingdom and the euro area, respectively. Nevertheless, I see some grounds for cautious optimism abroad as well. As in the United States, central banks in other advanced economies have taken significant steps to strengthen financial systems and to provide policy accommodation.
Mystery of wages lagging productivity growth solved. Recalc shows Productivity Growth was weaker too
Worker productivity growth has been below 2% in five of the past seven years after a long-run above 3%.
“Disappointing productivity growth,” Bernanke said, “must be added to the list of reasons that economic growth has been slower than hoped.” Unlike the other reasons—the faltering Euro, for instance, or ill-timed state and federal spending cuts—weak productivity growth was an unknown factor until this past November, when earlier data were recalculated—“an illustration,” Bernanke said, “of the frustrations of real-time policymaking.”
Because of weak productivity growth—that is, weak growth in output per worker per hour—Gross Domestic Product is about 7% below where it should be, according to Fed economists.
Until the recent data revision, productivity growth was one of the long-term bright spots in the economy. After tanking between 1973 and 1995, productivity growth rebounded to levels comparable to the booming post-World War II years, probably because of efficiencies generated by the World Wide Web. Nobody worried that productivity growth was too slow; instead, many worried that median income growth wasn’t keeping up with productivity growth, as it had during the postwar boom. (Indeed, in almost every year since 1999, pre-tax median household income has been declining.)
Rising productivity growth unaccompanied by a comparable rise in incomes for the typical American family is a problem. But slackening productivity growth creates a different problem: it limits the extent to which, even theoretically, wages can rise.
Read more »
