Bernanke expects job growth to be hard to come by in '12

— -- Federal Reserve Chairman Ben Bernanke threw cold water on the improving economic outlook Wednesday, saying further significant declines in unemployment are not likely without stronger economic growth.

"Continued improvement in the job market is likely to require stronger growth in final demand and production," Bernanke told the House Financial Services Committee in his semiannual report to Congress on monetary policy.

His remarks came on the same day the Commerce Department said the economy grew at a 3% annual pace in the fourth quarter, up from its previous 2.8% estimate.

Bernanke said the steep drop in the jobless rate since September, from 9% to 8.3%, has been surprising in light of relatively tepid economic growth. The economy expanded at a 2.3% annual rate in the second half of last year, which was far better than the first half's growth of less than 1% at an annual rate, but still a modest pace.

While the sharp drop in unemployment is partly due to average monthly nonfarm job gains of 183,000 the past five months, a large number of workers have dropped out of the labor force and are not counted among the unemployed. As job openings increase, unemployment could rise again if those workers resume their job searches.

Fed policymakers expect the jobless rate "to continue to edge down only slowly" this year, Bernanke said. In January, the Fed projected the economy would grow 2.2% to 2.7% this year and unemployment would be 8.2% to 8.5% by year's end.

The Fed could reevaluate its outlook if the job market continues to show surprising gains, he said. But Bernanke also indicated the Fed is not planning to take any additional measures to stimulate the economy.

Stocks turned lower Wednesday after those comments made it appear less likely that the Fed will buy more bonds to juice the economy even though the Fed referred to the possibility of doing so in its latest policymaking statement on Jan. 25.

Bernanke noted that consumer spending, particularly on autos, has picked up with the easing of supply-chain disruptions stemming from Japan's earthquake last year. Also, factory output and business investment have continued to grow and a widely followed private research report out Tuesday said consumer confidence in February reached the highest level in a year.

Still, Bernanke noted, "the fundamentals that support spending continue to be weak," with inflation-adjusted income flat in 2011 and lenders still tight-fisted. The sluggish housing market has shown hints of improving, but foreclosures and high vacancy rates are still pushing down prices.

Last year, the Fed took several steps to stimulate the economy, including huge purchases by the Fed of long-term Treasury bonds and mortgage-backed securities to help drive down borrowing costs for homebuyers, and policymakers agreeing that short-term interest rates would likely stay near zero for at least two years.

That has drawn criticism from Republicans who say the Fed's moves risked stoking inflation. But Bernanke reminded lawmakers Wednesday that the Fed's interest-rate forecasts aren't written in stone." If there is a substantial change in the outlook, we have to adjust accordingly," he said.

Bernanke declined to wade into the current battle in Congress that has Democrats advocating further government spending on infrastructure to create jobs, and Republicans opposing such measures because they'll add to the multitrillion-dollar federal debt.

If Congress passes further stimulus, it must be balanced by a long-term deficit-reduction plan, he said.

"You need to think about both of these things together," he said.