Economic Environment: Unemployment Still High Despite Improvementpublished by T Rowe Price
At the end of March, Federal Reserve Chairman Ben Bernanke said that the Fed's low interest rate policy is likely to remain in place a while longer to combat lingering problems in the labor market. The jobs market has been strengthening in recent months, but the unemployment rate is still high and may not fall much lower without stronger, sustainable economic growth. The situation calls for "more rapid expansion of production and demand from consumers and businesses," according to Bernanke, "a process that can be supported by continued accommodative policies." Underscoring Bernanke's delicate balancing act, February durable goods orders rose 2.2%, with shipments of core capital goods, excluding defense and aircraft, contributing 1.2% to the total advance. Consumer spending also went up in February by the largest amount in several months, but incomes barely grew, and the savings rate fell to its lowest level in more than two years. Other data indicate that the second quarter of the year might enjoy stronger economic growth than the first quarter, largely due to an improvement in capital equipment spending.
In the labor market, the number of Americans claiming initial unemployment benefits dropped to a four-year low during the quarter, offering further evidence that the jobs market recovery is gaining traction. In housing, new single-family home sales fell in February, but a jump in prices to their highest level in eight months fueled hopes for a housing market recovery. A recent rise in interest rates has put upward pressure on mortgage rates, suggesting that the time to buy or refinance a home at historically low rates may be behind us. Mortgage rates had been hovering at their lowest levels since the inception of long-term mortgages in the 1950s.