The head of the Federal Reserve Bank of Boston said Friday that unemployment will remain high even as the economy recovers as consumers continue to pull back on spending and businesses have trouble getting access to credit.
Eric S. Rosengren, president and CEO of the Boston Fed, told two business groups in Hartford on Friday that slow economic growth will be a drag on employment.
"And unfortunately the financial headwinds, lingering labor market problems and a cautious attitude of consumers and businesses in the wake of the financial crisis make it likely that recovery in employment terms will also be slow this time," he said in a speech to the Connecticut Business and Industry Association and MetroHartford Alliance.
His comments came as the U.S. Department of Labor reported that employers cut 85,000 jobs last month, worse than the 8,000 drop analysts expected. The December unemployment rate remained at 10 percent. The rate would have been higher, but more people who were looking for work left the labor force because they can't find jobs.
Rosengren said employers, reluctant to commit to permanent hires, are instead turning to part-time workers who comprise about 6 percent of the labor force, contributing to the weak labor force environment. Weekly overtime also declined significantly during the recession, he said.
The economy will grow faster in the fourth quarter than in the third quarter when it rose 2.2 percent, he said.
Growth will be positive, "but slow enough that unemployment remains much higher than I would like," Rosengren said.
Bank loans have declined over the past several quarters because businesses are reluctant to take on new debt, he said. In addition, many banks are limiting their loans to avoid risk, he said.
The labor market remains weak as skills among unemployed workers "may atrophy" and new workers often have to settle for jobs at levels that are lower than what they would be offered in a strong economy, he said.
The recession has not been as bad in New England as in the rest of the country because bankers did not engage in the "kind of speculative boom" in commercial and residential real estate that occurred elsewhere, Rosengren said.
New England was at the center of collapses in high technology and commercial real estate that resulted in the previous recessions in 2001-02 and 1991-92, he said.
"We're not the epicenter of the problem this time," he said.
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