Bernanke says job market weak despite gains

— -- Federal Reserve Chairman Ben Bernanke said Monday that recent improvements in the job market likely won't be sustained without stronger economic growth, a dilemma that he suggested could force the Fed to maintain or even expand its easy-money policies.

The sharp drop in the unemployment rate since September — from 9.1% 8.3% — has been surprising in light of the economy's tepid growth last year of less than 2%, Bernanke told a gathering of the National Association of Business Economists in Arlington, Va. Employers have added an average 250,000 jobs a month from December through February.

"Despite the recent improvement, the job market remains far from normal," Bernanke said. "The number of people working and total hours worked are still significantly below pre-crisis peaks."

Bernanke said that under widely accepted economic models, unemployment should have held steady or even risen amid such lackluster growth. He said the decline cannot be explained by an increase in the number of discouraged workers who have dropped out of the labor force, noting that group of Americans has shrunk along with the unemployment rate.

Instead, Bernanke said employers laid off many more workers than necessary in the recession in anticipation of an steeper downturn that never took place. Now, he said, they may well by making up for that overreaction by bringing their staffs back in line with expected customer demand.

If that's the case, however, then the recent robust job gains may be temporary, he said, adding that "further significant improvements in unemployment will likely require faster economic growth than we experienced during the past year."

Boosting customer demand further "can be supported" by monetary policies that stimulate economic growth, he said. For example, the Fed has said it likely will keep short-term interest rates near zero until at least 2014 and it has purchased more than $2 trillion in government bonds to lower long-term rates for home buyers and businesses.

Some economists have said the brightening job picture should prompt the Fed to signal that it will raise near-zero interest rates sooner than 2014 to head off inflation.

Bernanke also said high unemployment, particularly long-term joblessness of more than six months, is likely due mostly to a broad drop in economic activity, rather than "structural" factors, such as mismatches between jobless workers and open positions. For example, many economists say unemployed construction and manufacturing workers lack the skills for growing fields, such as healthcare or technology.

Bernanke, however, said labor demand has been weak across a broad swath of industries, not just a few growing ones. And he cited data showing that there is not an unusually large number of job vacancies, as there would be if expanding industries were unable to find qualified candidates among the unemployed.

Since unemployment is mostly traced to a still weak economy, then further steps "to support the economic recovery will help address this problem as well."

Despite an improving economy and job markets, some economists believe the Fed is likely to buy more government bonds to stimulate growth in the next few months.

Although Bernanke warned Congress recently that recent job growth may not be sustainable, his remarks Monday represented a far more detailed explanation for the reasons that easy-money policies may still be warranted.

Contributing: The Associaed Press.