Bernanke: US recession likely over.

9/16/2009 12:44:58 AM

The chairman of the US Federal Reserve has said that the country's recession "is very likely over" but that the economy will probably take some time to heal fully.

Ben Bernanke's comments appeared to be backed up on Tuesday by August retail sales data that indicated the fastest growth in three and a half years.

Bernanke said on Tuesday that the US economy would probably grow in the third quarter of 2009, two years after the downturn began.

"Even though, from a technical perspective, the recession is very likely over at this point, it's still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was," he said in Washington.

"So that's a challenge for us and policymakers going forward."

Bernanke's address to the Brookings Institution came a year after Lehman Brothers collapsed.

The failure of the US investment bank is widely considered to have sparked panic in the global financial markets which in turn deepened the severity of the worldwide recession.

Retail sales surge

Adding to the hopes and signs of recovery on Tuesday was a commerce department report that said US retail sales rose in August at the fastest pace in three and a half years.

The commerce department said retail sales climbed 2.7 per cent in August after declining 0.2 per cent in July.

The better-than-expected rise - the biggest monthly advance since January 2006 - suggests business is improving.

Retail sales were bolstered by the government's "cash for clunkers" programme, which gave consumers cash to swap ageing cars for new, fuel-efficient models.

But analysts say that this was not the main reason for the increase and that broad strength was evident.

Recovery 'slow'

In his speech on Tuesday, Bernanke also said that there was "agreement among the forecasting community at this point that we are in a recovery".

"But the general view of most forecasters is that the pace of growth in 2010 will be moderate, less than you might expect given the depth of the recession because of ongoing headwinds," he added.

He also said that he saw "encouraging" signs in securitisation - the activity where loans are packaged together and re-sold to investors andndash; including in areas not supported by the US central bank.

"We're seeing more activity taking place completely outside of the Fed's programme," he said.

But Bernanke acknowledged that tighter credit conditions will slow the pace of economic growth and arrest the creation of jobs.

Car industry 'revival'

The US unemployment rate for August stood at a 26-year high of 9.7 per cent as 216,000 jobs were lost, and analysts say unemployment could yet reach 10 per cent.

The administration of Barack Obama, the US president, has been attacked by Republican opponents over the extent of job losses during the recession, despite a $787bn economic stimulus plan designed to shorten the economic downturn.

In a speech to car workers in Ohio on Tuesday, Obama said that US car firms were "getting back in the game" after months of recession.

"As long as you've still got an ounce of fight left in you, I'll have a tonne of fight left in me," Obama said at the General Motors plant in Lordstown.

The president said that his administration's new fuel-efficiency standards for US cars and light trucks had encouraged vehicle-makers to be more competitive.

"It creates an even playing field, it's an action that is long overdue. It will give our auto companies clarity and stability and predictability," he said.

But Obama emphasised that the US is still facing economic challenges, saying that he did not want to "over promise" on how quickly the economy could recover.

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