Boston Fed chief offers gloomy outlook for US

Economy better off in N.E., he says

The economy is "right on the cusp" of recession, Eric Rosengren, the president of the Federal Reserve Bank of Boston, said yesterday, but New England appears to be suffering less than the rest of the nation because the local economy is less dependent on homebuilding and other construction than the economies of Florida, Southern California, and the struggling Sun Belt in between.

"New England has been better off than other parts of the country," he said, with housing prices declining modestly compared to harder-hit regions of the country.

Evidence of the fallout from a severe slump in the US housing market continued to accumulate yesterday.

The unemployment rate climbed to 5.1 percent in March, the highest level since the immediate aftermath of Hurricane Katrina in 2005. The US Department of Labor reported that employers cut payrolls by 80,000 in March.

Also yesterday, the average price for a gallon of regular gas topped $3.30, a new record, according to the American Automobile Association.

The employment data in particular led many economists to declare that a recession is upon us. The economy shed jobs every month in the first quarter, for a loss of 232,000 jobs this year. The last time job numbers declined for three straight months was in 2003, at the beginning of the Iraq war.

"This magnitude of a rise in the unemployment rate has never occurred in the postwar period without the economy being in recession," Bear Stearns Cos. said in a research note to clients. The investment bank is the most prominent casualty of those woes. It agreed to a government-sponsored buyout by its rival JPMorgan Chase & Co. after its finances were fatally compromised by its involvement in the subprime mortgage industry.

With polls showing the vast majority of Americans concerned about the administration's management of the economy, the three candidates to succeed President Bush all rushed yesterday to assure voters that they could do better.

Senator Hillary Clinton described herself as "Paulette Revere, calling for action to keep the problems from our housing market from spilling over into our economy." She said the government should spend $30 billion on stimulants. Her Democratic rival for the nomination, Senator Barack Obama, called the employment data "the latest indicator of how badly America needs fundamental change." He also said the government should pass a stimulus package, though he did not specify an amount.

Senator John McCain, the presumptive Republican nominee, said the numbers were a "stark reminder of the economic challenges confronting families." He called on the government to cut taxes, streamline regulation, and open foreign markets to American products.

Yesterday's jobs report shows the problems that started in the housing sector have spread. The nation lost 51,000 construction jobs in March, but also 48,000 manufacturing jobs and 35,000 "professional and business" positions. The net loss was mitigated by more jobs in healthcare and education, as well as the continued expansion of the government.

Still, it is clear that a growing number of American families are losing ground financially. Whether that constitutes a recession is literally an academic question, decided by a panel of economics scholars after the fact once additional data become available.

Rosengren was interviewed yesterday by NECN for "This Week in Business," a weekly show scheduled to air at 12:30 p.m. tomorrow. He said the new employment data was "consistent" with the opening stages of a recession, but without that data he could not tell whether economic growth actually is slowing.

It was one of the first extended interviews Rosengren has granted since taking office in July. It comes at a moment of high interest in the work of the Fed, which is charged with limiting inflation and unemployment, as well as supervising the nation's banks.

Rosengren defended the unprecedented federal bailout of Bear Stearns as necessary to protect the broader economy. "Extraordinary measures occur during extraordinary times," he said.

But he also acknowledged the Fed could have done more to avert the need for such a bailout. He said the Fed could have done more to prevent the housing market from overheating, and that its ability to supervise the industry was hampered by an inadequate regulatory structure that ought to be changed.

"Financial markets have evolved," Rosengren said. "Our regulatory framework has not evolved at the same speed."

He said the Fed first needed to address the current crisis, and then should consider various proposals to overhaul government oversight of the financial system.

Binyamin Appelbaum can be reached at bappelbaum@globe.com.