Bernanke Still Uncertain About Economy Despite Solid Improvements

Despite solid trends, some experts, including Fed Chairman Bernanke, believe a slowdown could be coming.

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The economic recovery has been humming along for months now, but don't get too comfortable.

At least, that's how some experts look at the current economic landscape. For now, the recovery looks solid. The Labor Department reported Thursday that new jobless claims fell by 5,000 last week to 359,000, a new four-year low. And in its third estimate of GDP, the Department of Commerce held that it grew at an annualized rate of 3.0 percent in the fourth quarter of 2012—unchanged from its previous estimate.

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But the future may not be as rosy as the current outlook. Federal Reserve Chariman Ben Bernanke was cautious when he addressed the National Association of Business Economics earlier this week.

"The combination of relatively modest GDP growth with the more substantial improvement in the labor market over the past year is something of a puzzle," he said, adding that it is uncertain whether the recent pace of job market improvement can continue.

Bernanke's uncertainty comes from a commonly held economic principle that the unemployment rate and changes in GDP are negatively correlated—that is, when one goes up, the other goes down. While that has been happening, the steep decline in unemployment, from 9.1 percent in August to 8.3 percent in February, seems too fast to be explained by the moderate GDP growth over the same period.

There are other reasons to believe that the nation still may be headed for a slowdown. Inventory growthcontributed heavily to the recent bump in GDP, says Nigel Gault, chief U.S. economist at IHS Global Insight, in a commentary on Thursday's report. That could mean lower GDP in the future, as businesses work to get rid of inventory.

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"We still think that growth will slow to around 2 percent in [the first fiscal quarter], with final sales doing much better, but inventories no longer adding to growth," writes Gault.

That does not bode well for employment. Earlier this week, Bernanke suggested that the economy has been adding jobs to compensate for massive layoffs during the recession, and that unemployment won't continue to trend downward without further growth.

Yet Thursday's report contains one bright spot that may point to a better job market. Gross Domestic Income, a measure of economic growth that is infrequently used, measures things like the income of workers, as well as business profits. That incidatorgrew by 4.4 percent in the fourth quarter of 2011, up 2.6 percent from the previous quarter.

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"The two measures over time should be identical, because one person's expenditure is another person's income," explains Conrad DeQuadros, a senior economist at economic research firm RDQ Economics.

DeQuadros says that over the course of the economic recovery, GDI growth has been at around 3 percent.

"That goes a long way to squaring that supposed confusion that Bernanke has been talking about between what's been suggested for growth and what we've seen on unemployment rates," he says. "If growth was close to 3 percent, then over the course of this recovery, it would make sense that the unemployment rate has fallen as much as it has."

In other words, while Bernanke may have a heavy influence on the U.S. economy, this is one occasion to hope he's wrong.

Twitter: @titonka