The US economy grew faster than initially believed in the fourth quarter, data showed today, but the Federal Reserve warned of a slower pace for 2012 as consumers keep their wallets zipped.
In a mixed picture for the US recovery, the Commerce Department revised its growth estimate for the last three months of 2011 to 3% from an initial estimate of 2.8%.
But that came after a dismal third quarter, and in testimony to Congress today, Fed Chairman Ben Bernanke said the economy this year was likely to expand "at a pace close to or somewhat above" the tepid average of 2.25% for the full second half of 2011.
He said the Fed expected unemployment would fall from the current official rate of 8.3% at only a slow pace this year.
The Fed chief pointed to an apparent contradiction in economic data showing, on one hand, a promising rise in production and some areas of consumption, and on the other, still-depressed consumer activity and still-slow job creation.
He said that high unemployment, stagnant wages and the depressed housing market continued to limit expansion. "The fundamentals that support spending continue to be weak," Bernanke said.
"Real household income and wealth were flat in 2011, and access to credit remained restricted for many potential borrowers. Consumer sentiment, which dropped sharply last summer, has since rebounded but remains relatively low," he added.
After the sharp fall in the jobless rate in the last six months, to 8.3% in January from 9.1% in August, Bernanke said the Fed expects unemployment "to continue to edge down only slowly" this year.
"Long-term unemployment is still near record levels, and the number of persons working part time for economic reasons is very high," he said.
Economists said the new fourth-quarter growth estimate suggested a slightly rosier picture for households than the Fed chief painted. But Bernanke pointed to the still-depressed US housing market as a dead weight on the economy.
He said the vast supply overhang and flat household incomes have limited the impact of the Fed's moves to push mortgage rates for homebuyers to record lows - aimed at turning around the property sector.
"Unfortunately, many potential buyers lack the down payment and credit history required to qualify for loans," the Fed chief said. "Others are reluctant to buy a house now because of concerns about their income, employment prospects, and the future path of home prices," he added.
Bernanke played down the most recent worry of rising oil prices, which has become a political issue as the campaign for the November presidential election picks up. The rise of petrol prices is "likely to push up inflation temporarily," he said. But, in the longer term inflation is expected to "remain subdued."
