Falling Home Prices, Shrinking Home Equity, Rising Food and Gas Prices, Surging Unemployment Yet Bernanke Says Recovery on Track

Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. economic recovery was on a solid footing but cautioned it could be years before the jobs lost during the deep recession of 2008-2009 are restored. While Bernanke said the economy had made an "important transition" to relying less on government support, his emphasis on the struggles of the U.S. jobs market suggested the central bank was in no rush to raise interest rates. "A significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009," he told the House of Representatives Budget Committee. "In this environment, inflation is likely to remain subdued." U.S. stocks rose for most of the session, partly on Bernanke's optimism, but gains eroded late in the session and stocks closed lower. - Bernanke says recovery on track but jobs to lag, Reuters, June 9, 2011

Americans' Equity in Their Homes Near a Record Low

June 9, 2011

AP – Falling home prices have shrunk equity so much that the proportion of their homes that Americans actually own is near its lowest point since World War II.

The Federal Reserve says average home equity plunged from more than 61 percent at the start of 2001 to 38 percent in the January-March quarter this year. That drop comes as home prices in big metro areas have reached their lowest level since 2002.

The Fed's quarterly report shows how much wealth, or net worth, Americans have gained or lost. Net worth is the value of assets such as homes and stocks, minus debts like mortgages and credit cards.

Americans' overall net worth grew 1.65 percent in the January-March period, to $58.06 trillion, because of stock market gains.

High Unemployment Claims, Food Prices Slow Economyy

June 9, 2011

AP – Jobs are scarce and food prices are likely to stay high through next year, making it harder for the U.S. economy to escape its current weak patch.

The U.S. trade deficit narrowed in April partly because American companies sold more goods overseas and imports fell. While that's a positive sign, economists are downplaying the impact because much of the improvement was the result of temporary factors.

The spate of reports Thursday reinforced the view among economists that hiring has weakened and the economy has slowed.

"There is a significant slowdown going on," said Paul Dales, senior U.S. economist at Capital Economics. "The economy is unlikely to grow at a decent rate anytime in the next year or two."

Thursday's data showed:

• The number of people seeking unemployment benefits hardly changed for a second straight week, the Labor Department said. Applications ticked up 1,000 to a seasonally adjusted 427,000 last week. It marked the ninth straight week in which applications have been above 400,000. That trend represents a setback after applications had been declining all winter.

• A wet spring will likely cut the size of this fall's corn harvest and keep food prices high through 2012, the Agriculture Department said. That would limit consumers' ability to spend money on other goods. Consumer spending accounts for 70 percent of the U.S. economy.

• Exports of U.S. goods and services rose to a record $175.6 billion while imports dipped to $219.2 billion, the Commerce Department reported. But a key reason the U.S. trade deficit narrowed was a 25.5 percent decline in imports from Japan, which is recovering from the March 11 earthquake and tsunami. Most economists expect Japanese factories will rebound in the next few months. That should ease supply disruptions and boost imports.

• Wholesale companies added to their stockpiles in April for a 16th straight month, a separate Commerce report said. That boosted inventories to the highest level since October 2008, a sign that businesses in early spring were expecting stronger sales. But more recent data suggests that high gas prices have since weakened demand for manufactured goods, a trend that could shrink supply levels in the months to come.

Hiring has slowed at the same time that unemployment benefits have remained at elevated levels. Employers added only 54,000 net new jobs in May, the department said last week. That was much slower than the average gain of 220,000 per month in the previous three months. The unemployment rate rose to 9.1 percent.

Unemployment applications had fallen in February to 375,000, a level that signals sustainable job growth. They stayed below 400,000 for seven of nine weeks. But applications surged in April to 478,000 — an eight-month high — and they have been stuck above 400,000 since then.

Neil Dutta, an economist at Bank of America Merrill Lynch, said hiring will likely rebound to a pace of about 150,000 new jobs per month. But that's barely enough to reduce the unemployment rate.

Recent data suggests that employers have lost some confidence in the economic recovery, Dutta said. He pointed to gas prices, the Japan crises that have led to a parts shortage and the inability of Congress to agree on a plan to raise the $14.3 trillion debt ceiling as the main reasons.

Food prices are also straining household budgets. The latest forecast for the U.S. corn crop suggests that will continue through next year. The United States will have a surplus of just 695 million bushels of corn in 2012, far less than the 900 million estimated last month.

Rain delayed planting schedules and will likely diminish crops by harvest time in September, the government said. More expensive grain could ultimately make everything from beef to cereal to soft drinks more expensive at the supermarket.

There were some positive signs in the latest reports.

American companies sold more computers, heavy machinery and telecommunications equipment in foreign markets in April. That pushed exports to a record high for the second straight month and narrowed the trade deficit for the first time since December. A weaker dollar has made U.S. goods and services cheaper overseas.

And sales by wholesale companies increased in April for the ninth time in 10 months.