Bernanke Excites Markets

Bernanke said in a speech to the National Association for Business Economics spring conference that the U.S. economy might still need help to pick up the pace of job growth.

Federal Reserve Chairman Ben Bernanke did not explicitly talk of QE3 on Monday, or really promise much of anything—that’s not in any central banker’s playbook. Still, the chairman did say in a speech to the National Association for Business Economics spring conference that the U.S. economy might still need help to pick up the pace of job growth. Help from the Fed, that is. Maybe something a little more robust than low interest rates. (But again, he didn’t say that.)

“Conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks, even without adjusting for growth in the labor force,” Bernanke did said. “Moreover, we cannot yet be sure that the recent pace of improvement in the labor market will be sustained.”

What to do about it? To quote the chairman in his vague way, “To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.” As in low interest rates, but also possibly another round of bond buying.

In any case, investors were left with visions of a QE3 stimulus in their heads. The Dow Jones Industrial Average made one of the year’s larger gains so far, up 160.9 points, or 1.23 percent. The S&P 500 rose 1.39 percent, and the Nasdaq was up 1.78 percent, to end at its highest level since late 2000. After the close of trading in New York, Asian markets opened on Tuesday morning higher, too.

Other Fed data shows so-so economic growth

According to the Chicago Federal Reserve on Monday, its national activity index, which tracks 85 component indicators, shows roughly average U.S. economic growth in February. The index dropped to –0.09 in February from +0.33 in January, but the three-month average—called CFNAI-MA3—was up from +0.22 in January to +0.30 in February, the highest the CFNAI-MA3 has been since May 2010. Anything above zero indicates higher-than-average growth.

The production-related components of the index dropped to just below average growth at –0.01 in February, while employment-related components registered +0.18 during the month. As usual, the consumption and housing components dragged things down, registering –0.27 in February, but even that was up a little from January’s reading of –0.29.

The Dallas Fed said on Monday that Texas factory activity continued to increase in March, citing business executives responding to its Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, held steady at 11.1, suggesting growth continued at about the same pace as last month.

The executives surveyed by the Dallas Fed were generally positive; 23 percent of them noted improvement in the level of business activity, while 12 percent experienced a worsening. Also, 29 percent of firms noted improvement in the level of business activity, while 12 percent said they were suffering from a decline in activity.