By Steven K. Beckner

(MNI) – Cleveland Federal Reserve Bank President Sandra Pianalto
spoke gloomily about the U.S. economy and its outlook Thursday, but did
not say what more the Fed should do to help it.

“This has been a painfully slow economic recovery”, said Pianalto
in prepared remarks to a conference on the Midwest economy in Toledo.

Pianalto, who backed monetary stimulus measures as a voting member
of the Fed’s policymaking Federal Open Market Committee last year,
foresaw only a modest pick-up in GDP growth with little reduction in
unemployment.

She suggested that the economy is suffering from a lack of
aggregate demand more than anything.

“In this recovery consumers have been reluctant to increase
spending in the face of weak income growth and the loss of household
wealth,” she said. “In fact, many households are focused on paying down
debt and increasing savings.”

“Housing markets remain subdued, the government sector is very
constrained, and international markets are unsettled,” she continued.
“These headwinds continue to create challenges for businesses,
employees, and families.”

Pianalto said because of “weakness in output growth,” “there has
been almost no rebound in the labor market.”

“A particularly troubling aspect of our current unemployment
problem is the long duration of unemployment experienced by many
individuals. Nearly half of the unemployed have been out of work for
more than six months, and this statistic does not include the
substantial number of individuals that have simply left the labor
market,” she said.

Pianalto said “the most important reason for our high unemployment
rates is that spending by consumers, businesses, and government still
remains uninspiring. In other words, these higher rates of unemployment
are predominantly cyclical in nature.”

“The employment path we are on is a direct result of the weak
output growth we have experienced,” she said, adding that “we need a
growth rate of around 2% just to accommodate the new entrants into the
workforce.”

“In order for the U.S. economy to make substantial progress on
reducing unemployment, economic growth clearly needs to accelerate,” she
said. “Unfortunately, I don’t expect the pace of growth to pick up very
soon; my outlook for real GDP growth in 2012 is about 2 1/2%, on par
with the past two years.”

Pianalto was a bit more upbeat about manufacturing. She noted that
“U.S. manufactured exports have risen briskly over the last two years,
aided by the value of the dollar.”

** Market News International **

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