By Jia Lynn Yang
Washington Post Staff Writer
Thursday, June 10, 2010; A12
The U.S. economy continues a slow, painful recovery, but Congress must prepare to address an "unsustainable" level of debt in the federal budget, Federal Reserve Chairman Ben S. Bernanke cautioned Wednesday.
"Our nation's fiscal position has deteriorated appreciably since the onset of the financial crisis and the recession," Bernanke told the House Budget Committee.
The budget deficit was necessary to help get the nation out of recession, Bernanke said, but will have to be addressed in the long term, particularly in light of the European debt crisis.
As the U.S. economy improves and stimulus measures are phased out, Bernanke said, the budget deficit gap should narrow. But the country's aging population will make it hard to balance the budget, as the ratio of taxpayers to elderly people benefiting from social programs decreases.
Several factors continue to drag on the economy. The jobless rate remains stubbornly high, and the housing market hasn't shaken its supply of foreclosures and short sales. Still, the recovery inches forward, according to Bernanke and the Fed's "beige book" report on conditions around the country, which was released Wednesday.
Consumers are opening their wallets slightly more, according to the Fed's latest survey, which is based on anecdotal reports collected through May 28 from the Fed's 12 districts. Business spending is up, as well, with some growth in the manufacturing, nonfinancial services and transportation sectors.
There are early signs, however, that the Gulf of Mexico oil spill is hurting tourism spending. The Fed's Atlanta district reported some cancellations of vacation lodgings.
Inflation has remained low, the report said, making it likely that the Fed will stick to its policy of keeping the benchmark U.S. interest rate close to zero when policymakers meet later this month.
But the U.S. economy's major trouble spots -- the housing market and the 9.7 percent unemployment rate -- are showing their staying power.
The residential real estate market could head into another slump -- or at least remain flat -- now that government-subsidized incentives have ended. The number of customers applying for a home mortgage fell to the lowest level in 13 years last week, the Mortgage Bankers Association said Wednesday, suggesting that the modest housing recovery had been propped up by subsidies. A home-buyer tax credit expired at the end of April.
On the jobs front, Bernanke said it would still be a "significant amount of time" before the economy recovered the 8.5 million jobs lost during 2008 and 2009. Unemployment is known as a lagging indicator, meaning it is among the last pieces of economic data to improve coming out of a recession.
Companies are still hesitant to hire, according to a survey of chief financial officers in the United States released Wednesday. Nearly 60 percent of the 1,102 executives surveyed this month said they will not return their staffs to pre-recession levels until 2012 or later. And plans to hire over the next year are limited, according to the Duke University/CFO Magazine Global Business Outlook Survey.
After delivering this mixed news Wednesday morning on Capitol Hill, Bernanke traveled to Richmond to praise programs at community colleges that help people find work. "We will have no easy resolution to the challenges we face in restoring jobs and strengthening the economy," he said.