Not "Out of the woods yet," says Bernanke

Online, May 5, 2010 (Newswire.com) - Federal Reserve Chairman Ben Bernanke told a crowd of almost 1,500 on April 7th that economy is recovering, but substantial challenges - near-term and long-term - remain for the U.S. as well as the global economy. He commented that the economy seemed to have stabilized and is growing again but substantial financial threats remain. We are far from being out of the woods," Bernanke told the business audience. "Many Americans are still grappling with unemployment or foreclosure or both." The head of the Federal Reserve stressed that "More than 40% of the unemployed have been out of work for six months or longer ... long spells of unemployment erode skills and lower the longer-term income and employment prospects of these workers."

The unemployment rate remains at historic levels - with young people, usually the backbone of a consumer society - and who are more likely than any other demographic group to apply for small business loans, mortgages and other forms of credit experiencing higher rates of unemployment than ever. Business owners as well as individual borrowers are opting in large numbers to defer small business loans or other credit options until after the economic recovery strengthens.

According to a report by the Federal Reserve, the loan balances of U.S. borrowers declined by $11.5 billion in February alone - and this represents the 12th decline in the rate of borrowing in the last 13 months. Many economists have become concerned that unless consumer borrowing stabilizes, it could derail the recovery because it will lower consumer demand for goods and services in the larger economy. Demand for goods and services by individual consumers accounts for 70 percent of total economic activity - and a resurgence in personal consumer lending is seen by many economists as critical to the recovery of the U.S. economy.

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