Bloomberg News went to Ben Bernanke's childhood backyard in South Carolina to eloquently show how an intense productivity drive by U.S. companies is impeding the Federal Reserve chairman's efforts to lower the unemployment rate.
The Bloomberg story adds texture to the debate over why U.S. employers are so reluctant to add jobs. The minutes of the Fed's Nov. 2-3 policy meeting show policy makers continued to debate whether the problem is structural, with some arguing that the unemployment rate is stuck near 10 per cent because there is a mismatch between skills and jobs and that potential workers are unwilling or unable to move to jobs because they can't sell their homes. But as they did at their previous meeting, most policy makers dismissed this argument, concluding that the bigger issue is demand.
Bloomberg calculated that some 142 non-financial companies in the S&P 500 had improvements in operating margins of three percentage points or more from the end of 2007, when the previous expansion peaked, compared with the most recent quarter.
Productivity gains like that promise to make those businesses hyper-competitive when the U.S. economy bounces back. But they are also learning that they don't need as many workers to keep up with orders. It means the U.S. unemployment rate may never fall back to its low pre-crisis levels.
The Fed's top officials appear to sense this. At its policy meeting earlier this month, the Fed raised its estimate for longer run unemployment to between 5 per cent and 6 per cent from 5 per cent and 5.3 per cent in June.