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Fed Waits For Economic Growth To Pick Up


On a Wednesday, it's MORNING EDITION from NPR News. I'm Steve Inskeep.


And I'm Renee Montagne.

Here's the good economic news: Employers have been hiring more quickly than the experts predicted.

INSKEEP: The bad economic news is that experts still are not sure why employers are hiring so quickly. While the U.S. economy is growing, economists are not sure it is growing quickly enough to justify the many jobs created in recent months.

MONTAGNE: That concern helps to explain why the Federal Reserve has again said it's going to keep short-term interest rates near zero.

NPR's Chris Arnold reports on uncertainty about the economy's future.

CHRIS ARNOLD, BYLINE: Here's the puzzle: If the economy isn't growing that much, then how can the U.S. be gaining so many more jobs?

LAWRENCE KATZ: We have had five pretty good months of job growth; certainly, the best we've seen since 2007. So that's the good news.

ARNOLD: That's Lawrence Katz, a labor economist at Harvard. But he says given the job growth, the economy, our gross domestic product should be growing faster than it is. GDP usually outpaces job growth in a recovery. But that's not happening. GDP is around 2 percent, and that's pretty anemic.

BETSEY STEVENSON: So that tells us that something's wrong.

ARNOLD: Betsey Stevenson is an economist at Princeton, and a former chief economist at the Labor Department. She says you just can't have sustained job gains without stronger overall economic growth. So maybe one thing that's going on, she says, is that the GDP data is just wrong, and it'll be revised. On the other hand, if it's not wrong...

STEVENSON: Well, certainly I think there's a lot of speculation going on right now - are we about to see job growth slow down?

ARNOLD: In other words, without the rest of the economy doing better, will the recovery in the jobs market stall out?

Lawrence Katz says that idea is troubling, because even the job growth that we're seeing right now isn't great, and we need it to get much stronger.

KATZ: Even if we had a very rapid recovery, we have a huge distance to go still. We are still 10 million jobs behind. So it would take, basically, four years of strong job growth to get back to a normally functioning labor market.

ARNOLD: So slower job growth would mean an even longer period of high unemployment and economic hardship for millions of Americans.

All these are things that the Federal Reserve lately has been very focused on.

UNIDENTIFIED MAN: Chairman Bernanke, please begin your testimony.

BEN BERNANKE: Thank you.

ARNOLD: Federal Reserve Chairman Ben Bernanke recently gave his economic forecast to Congress. And he seemed be saying, don't get too excited about the unemployment rate, which has fallen sharply in recent months - down to 8.3 percent.

BERNANKE: The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that timeframe at or below its longer-term trends. Continued improvement in the job market is likely to require stronger growth in final demand and production.

ARNOLD: In other words, unless economic growth speeds up, the jobs market is still in big trouble.

ROBERT SHIMER: Notwithstanding the better recent data, the job market remains far from normal.

ARNOLD: Some economists see a pretty bleak picture shaping up in all this. Robert Shimer is a professor at the University of Chicago. He says the unemployment rate is misleading. Yes, it's fallen a lot lately, but he says that's mostly because people are discouraged and dropping out of the labor force. He says if you just look at the percentage of the population that actually has jobs, those numbers don't look so good.

SHIMER: The employment numbers look much more like what's happening in GDP, and those all point to an anemic recovery.

ARNOLD: Actually, a really anemic recovery, according to Shimer.

SHIMER: At the current rates, employment is going to return back to its old trend in something like eight years, which is a depressingly long period of time.

ARNOLD: That sounds pretty dismal, but... .

JOHN SILVIA: There's a little bit too much pessimism.

ARNOLD: That's John Silvia, the chief economist of Wells Fargo. He is more optimistic.

SILVIA: I think 6 to 6.5 percent unemployment two years from now is a reasonable goal. I think a lot of people will be surprised at the strength of the economy in the next two or three years.

ARNOLD: For its part, the Federal Reserve, though, remains cautious. And it stands ready to take more action to boost the economy further if it deems it necessary.

Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.