This week, the newest chair of the Federal Reserve, Janet Yellen, provided frank and honest insight into how she feels the U.S. economy is performing. Her opinion and insight may surprise you.
The U.S. economy
Much has been made of the decline in unemployment since its peak of 10% in October 2009 to its latest reading of 6.7%. In total, the U.S. has added more than 7.5 million new jobs and the economy has grown its output by more than $1.5 trillion.
This of course fails to mention the remarkable recovery in stock prices, as the S&P 500 is up by more than 150% and seemingly touches a new all-time high each and every week.
Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) are also powerful examples of the rebound, as their stock prices have each risen by more than 450% over the same time. While questions swirled surrounding their ability to even exist five years ago, all signs point to these two being well on the path to recovery.
All of this has led many to believe the economy in the U.S. has fully recovered and the Federal Reserve has done its job -- yet the remarks from Yellen at a recent speech provide unique insight into how she feels:
"[W]hile there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health...The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics."
The truth about unemployment
One of the first things Yellen highlights is that while the unemployment rate is well below its peak, it still remains distinctly elevated where it stood both before the recession and in the decades prior:
Yet it isn't as though the unemployment rate tells the entire picture. While there have undoubtedly been improvement in the dynamics of the labor force, the number of people working part-time exclusively for economic reasons stands at a staggering 7.2 million. Prior to 2008, on average, the number of individuals falling into that category stood at just 4.1 million.
Another problem Yellen discusses is nearly 40% of those who are unemployed have been looking for work for more than six months -- 3.9 million people -- and employers are often hesitant to hire more qualified individuals who have been unemployed for a long period of time. This is one of the many reasons the participation rate -- the measure of individuals who are either working or looking for work -- stands at just 63%. Many who desire to be working have been discouraged and left the labor force entirely.
Rightly, Yellen notes these pieces of insight -- plus low wage growth and others factors -- couple together to "tell us important things that the unemployment rate alone cannot."
As a result, Yellen suggests, "based on the evidence available, it is clear to me that the U.S. economy is still considerably short of the two goals assigned to the Federal Reserve by the Congress." She believes there is still work to be done surrounding its focus to ensure the economy is operating at its full capacity.
Yellen (and the other Federal Reserve members) believe unemployment should instead be between 5.2% and 5.6%. While 6.7% is certainly much closer than where the economy has been, when you consider both the striking number of individuals who have left the workforce or find themselves working part-time because of conditions outside of their control, Yellen is right to assert more needs to be done.
The Foolish bottom line
Yellen concludes by noting, "the scars from the Great Recession remain, and reaching our goals will take time," but "the Federal Reserve is committed to strengthening communities and restoring a healthy economy that benefits all Americans."
While in countless ways it is encouraging to see how dramatically things have improved since the depths of the recession, it should cause great hope to know one of the most powerful individuals guiding the economy understands America is capable of providing so much more, and as a result, even more is to be done.
Patrick Morris owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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