Federal Reserve Chairman Ben Bernanke told lawmakers on Capitol Hill this week that there's a lack of "confidence in the durability of the recovery" and in consumers' "own income prospects."
"Moreover, the ongoing weakness in home values is holding down household wealth and weighing on consumer sentiment," he told the Senate Banking, Housing and Urban Affairs Committee on Thursday. "On the positive side, household debt burdens are declining, delinquency rates on credit cards and auto loans are down significantly, and the number of homeowners missing a mortgage payment for the first time is decreasing."
Bernanke emphasized that it's up to Congress to determine what actions to take next to accelerate economic growth, urging caution as lawmakers undertake budget cuts in an effort to reach an agreement on raising the nation's $14.3 trillion debt ceiling.
"I only ask or suggest that as Congress looks at the timing and composition of its changes to the budget that it do take — that it does take into account that in the very near term that the recovery is still rather fragile and that sharp and excessive cuts in the very short term would be potentially damaging to that recovery," he said.
The White House and congressional negotiators are still working on an agreement that would allow for an increase in the debt ceiling so the U.S. can avoid default.
A separate report from the Fed on Friday showed that industrial production rose less than forecast in June, hampered by a drop in manufacturing, specifically autos, which are related to supply chain disruptions following the March earthquake in Japan that caused U.S. motor vehicle producers to sharply curtail assemblies.
The 0.2 percent increase in production at factories, mines and utilities followed a revised 0.1 percent decrease the prior month that was initially reported as a gain, the federal report showed.
Auto manufacturing dropped to 7.8 million units at an annual rate in June, the lowest this year, the report showed.
Business equipment production declined 0.7 percent in June following a 1.2 percent increase.
The production of computers and electronic products dipped 0.7 percent after a 0.6 percent gain. Furniture production, which also saw a decline in sales last month according to Thursday's retail report, dropped 2.1 percent last month.
Capacity utilization, which measures the amount of a plant that is in use, held at 76.7 percent in June. The average figure for the past 20 years is 79.5 percent.
Mining production, including oil drilling, increased by 0.5 percent. Utility output was up 0.9 percent after a 2 percent drop.