Federal Reserve Chairman Alan Greenspan said on Friday strong economic growth should soon produce more jobs but he warned US manufacturers they should not count on a Chinese currency revaluation being a major boon for them.
"Very sluggish" US job growth would pick up when exceptional strong rates of productivity, or output per worker, slowed and that may be occurring, Greenspan said in answer to questions following an address to the Stanford Institute for Economic Policy Research.
"I would say that we could get a pop in employment almost any time," Greenspan said, since the economy had been growing rapidly enough that companies cannot indefinitely boost output with existing workforces.
"Job creation occurs when you no longer can dip into the system of potential productivity advances to substitute for labour," Greenspan said, adding "My own judgment is that at some point that is almost certainly going to happen, indeed it is conceivable it may be happening now."
The dearth of new US jobs, despite a growing economy, has become a major issue in the run-up to November presidential elections, with Democrats hammering the Bush administration for overseeing a jobless recovery from the 2001 recession.
The Fed chief suggested the effect of broadening the trading band for the yuan or moving quickly to a floating exchange rate was largely unknown because it wasn't even clear "what the extent, if any, of the undervaluation" is of China's yuan.
US manufacturers claim it is undervalued by as much as 40 percent, and say that gives China an unfair trade advantage by making its products cheaper for Americans.
But Greenspan said that it was unclear what would happen of Beijing removed its controls on capital flows.
"The one thing I'm reasonably sure of, however, is that if the value of the Chinese currency does rise, which I think is a fairly reasonable expectation it is not going to shut down exports from China to the United States, which will then be replaced by US production," Greenspan said. Nor will it bring jobs back to America.
"Almost surely, what will happen is that you will move the supply of goods that the Chinese were shipping to the United States from China to other low-cost producers, probably in Southeast Asia," Greenspan said, adding that the Philippines or Vietnam could easily step in.
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