US Economy Declines at Slower Pace

By Michael Bowman

25 June 2009

U.S. employment indicators remain volatile, with new jobless claims rising unexpectedly. U.S. Federal Reserve Chairman Ben Bernanke has defended government actions taken to rescue America's financial system during last year's meltdown.

It is a consensus view among economists: U.S. unemployment will continue to rise even as the overall economy shows signs of stabilizing amid a protracted, severe recession.

The latest figures from the Labor Department confirm that view, with 627,000 Americans filing for unemployment benefits last week. That was 15,000 more than the previous week, and more than 200,000 more than the number recorded at the same time last year.

The cumulative number of people receiving jobless assistance has also risen, to 6.74 million. The U.S. unemployment rate stands at 9.4 percent, and is expected to top 10 percent later this year.

Economist Brian Wesbury of First Trust Portfolios says America's employment picture remains bleak.

"There are still hundreds of thousands of people who are losing their jobs and filing unemployment insurance claims every week," Wesbury said.

Wesbury says job creation typically lags behind other economic indicators at the end of a recession.

"Even though the economy has come through this very, very weak patch, there is a lot of evidence gathering that the economy is now bottoming and beginning to turn upward," Wesbury said.

The Commerce Department says the U.S. economy shrank at a 5.5 percent annual rate in the first three months of the year. That was a slightly-improved number from an initial estimate of a 5.7 percent contraction.

Federal Reserve Chairman Ben Bernanke has expressed cautious optimism that the U.S. economy can return to positive growth by the end of the year.

Ben Bernanke testifies on Capitol Hill in Washington, 25 Jun 2009, before House Oversight and Government Reform Committee hearing

Bernanke appeared on Capitol Hill to explain the federal government's role in a controversial corporate takeover during last year's financial meltdown that radically altered America's banking and investment landscape.

Congress has been probing Bank of America's government-aided acquisition of troubled investment firm Merrill Lynch, one of several financial services companies that collapsed amid a rash of home mortgage loan defaults in the United States.

The Chairman of the House Committee on Oversight and Government reform, Edolphus Towns of New York, says the Fed's actions must be scrutinized in light of the Obama administration's proposals to overhaul America's financial regulatory system.

"These questions are particularly important, given the administration's new proposal to give broad new powers to the Federal Reserve," Towns said. "I believe that before Congress acts on the president's financial services reform proposal, we need to have a thorough understanding of what caused the current financial crisis and how the federal government responded."

Bernanke testified that he issued no threats to Bank of America executives to force them to go through with the takeover of Merrill Lynch, nor did he instruct them to hide information pertaining to massive losses at the investment firm.

"I believe that our actions in this episode, including the development of an assistance package that facilitated the consummation of Bank of America's acquisition of Merrill Lynch, were done not only with the highest integrity, but have strengthened both companies while enhancing the stability of the financial markets and protecting the taxpayers,"Bernanke said. "These actions were taken under highly unusual circumstances in the face of grave threats to our financial system and our economy."

Bernanke's testimony contrasts sharply with statements from Bank of America executives, who say federal officials threatened to oust them from their jobs if they backed out of the Merrill Lynch acquisition. Bank of America received a total of $45 billion from the government under last year's emergency financial rescue plan.