WASHINGTON (AP) -- At last, after a nerve-racking six-month descent, the economy appears to be leveling off.
But don't assume the bumps are over.
Stock investors, shoppers and home buyers are less jittery. Once-frozen credit markets are slowly thawing. And economic indicators that had been going from bad to worse are showing signs of stabilizing -- though still at distressed levels.
There were fresh signs Thursday that the full force of the recession may be petering out: a strong profit forecast from Wells Fargo, a drop in unemployment benefit filings and several retailers predicting solid April sales. On Wall Street, the Dow Jones industrials rose nearly 250 points.
Still, with unemployment rising, it will be at least several months before the country's economic engine pops into a growth gear. Job losses -- and the fear of them -- act as a headwind against consumer confidence and spending, which account for more than two-thirds of the U.S. economy.
"The sense of a ball falling off a table, which is what the economy has felt like since the middle of last fall, I think we can be reasonably confident that that is going to end within the next few months, and we will no longer have that sense of a free-fall," President Barack Obama's top economic adviser, Lawrence Summers, said Thursday.
But Summers, who spoke at the Economic Club of Washington, said it was too soon to forecast how strong the rebound would be and when it would take hold.
The economy shrank at a 6.3 percent rate in the final three months of 2008, the worst showing in a quarter-century. Some economists say it fared about as poorly in the first three months of this year, while others expect a 4 to 5 percent rate of decline. The government releases its initial estimate at the end of April.
And the economy is still shrinking in the April-June quarter -- perhaps at a rate of 2 to 2.5 percent, some analysts say.
When will it grow again? Maybe the final quarter of the year.
For now, said Brian Bethune, economist at IHS Global Insight, "I think we can say we've gone through the most terrible part of the recession."
The scenarios charted by economists are consistent with Federal Reserve Chairman Ben Bernanke's hope that the recession, now in its second year, will end this year.
Bernanke, however, has been quick to caution that this will happen only if the government succeeds in stabilizing financial markets and getting banks to lend money more freely again to both consumers and businesses. To that end, the Fed recently plowed $1.2 trillion into the economy in an attempt to reduce interest rates for mortgages and other loans.
Even in the best-case scenario, the unemployment rate -- now at a quarter-century high of 8.5 percent -- is anticipated to climb to 10 percent by the end of this year.
History shows that the jobless rate moves higher well after a recession has ended. That's because companies won't want to ramp up hiring -- often their single-biggest expense -- until they feel confident any recovery will be lasting.
Consumers, whose sharp cutbacks in spending plunged the country into a steep economic tailspin at the end of last year, seem to be gradually spending more freely.
On Thursday, Wal-Mart Stores Inc., the world's largest retailer, said sales at stores open at least a year increased 1.4 percent in March. However, discount retailer Target Stores Inc.'s sales fell.
The government reported last month that consumer spending rose in February for the second month in a row -- after a half-year of declines.
Shoppers' appetites to spend should get a lift later this year from tax cuts contained in Obama's $787 billion economic stimulus package. Tax credits of $400 per worker and $800 per couple translate into about $13 a week less withheld from paychecks starting around June.
The hope is that the added consumer spending will prompt retailers to replenish inventories, which have been cut nearly to the bone during the recession. That would require factories to boost production, creating a ripple of positive economic activity.
Thursday's $3 billion first-quarter profit forecast from Wells Fargo was in part a reflection of the very low interest rates at which banks can borrow money from the government and then lend it out at higher rates to consumers and businesses.
Another positive flicker came Thursday from the Labor Department, which reported that the number of newly laid off Americans filing for unemployment benefits dropped by 20,000 last week to 654,000.
Although credit and financial conditions have shown some signs of improvement since the worst of the crisis last fall, they are operating far from normally, Fed officials say.
"In view of the state of the credit markets, it seems a fair bet that it will take time for momentum to build," Gary Stern, president of the Federal Reserve Bank of Minneapolis said in a speech Thursday. "But with the passage of time -- as we get into the middle of 2010 and beyond -- I would expect to see a resumption of healthy growth."
To be sure, the economy is not out of the woods yet. Another bailout of a troubled bank or other company could easily shatter already fragile confidence and send the economy reeling again. The collapse of General Motors would send many more to the unemployment lines and could jolt the economy into a major backslide. And, there's the risk that consumers will once again shut down as jobs continue to vanish.
And, even if the recession were to end later this year, most economists believe economic activity won't return to a more normal pace of around 3 percent to 3.25 percent until late next year.
"Yes we have probably seen the worst ... but the shape of the recovery will look more like the Nike swoosh," meaning a gradual -- not sharp -- rise back to normal, said John Silvia, chief economist at Wachovia Corp.
Thoughts on this? Whats the explanation for the recent recovery? Is this just absurd optimistic hope?
There is a looooooooong way to fall still.
Market anarchist, Linux geek, aspiring Perl hacker, and student of the neo-Aristotelians, the classical individualist anarchists, and the Austrian school.
Market is always on the road to recovery. It just has a bunch of dudes in the government slowing the progress
How long do you guys think it will take until the market starts to tank again?
Yes, this is just absurd optimistic hope. Today Barnake said (WSJ) that the beginning of the recovery previously predicted for the second half of this year will not begin until 2010. He did not say which half. Friday last week, at a dinner at an economic council in NY, Greenspan said that the market has completely changed, it is now a "government-dependent market". After 2 years of watching the market closely, I also observed the change, it happened on Wednesday when the market was acting as it never has before. In about October of 2008 it went crazy - completely insane. It has been steadying up since then, with intermittant crazyness. But Wednesday was different. Unfortunately I don't know how to describe it. The market will never be the same again. A government-dependent market is not a trustworthy market in any sense.
As for the economy, please see:http://market-ticker.org/archives/852-Whats-Dead-Short-Answer-All-Of-It.html, http://www.mscibarra.com/products/indices/stdindex/performance.jsp, http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm, http://www.bloomberg.com/apps/quote?ticker=MXWO%3AIND, and there's an overall set of charts I can't find right now.
IMHO the Money-Honey's and Talking-Head's will do anything to look good, they even chide each other when someone sounds too negative. "We have to keep our spirits up". Remember Cramer kept saying Bear-Sterns was a buy, buy, buy, then he became silent when it crashed. WSJ says the commercial building boom is starting to roll-over their loans and the new rates are way up. When they can not be make, the smaller banks, credit unions, etc. will start to fail. The smaller bank CEO's are already blaming the larger banks for the problems.
I'm waiting for the t-bond yeilds to start up. That will be the ending signal. I hope it doesn't happen soon. (Although monetizing your own loans is pretty bad. Bad enough for China, South America, Russia, and Iran to begin to form an alternate Reserve Currency, or at least SDR's through the IMF.)
I purchased a gold mutual fund as there was a rally in the stock market. So I am putting my money where my opinion is.
This is an absolutely average article. Consumers caused the recession by slowing their spending and government is getting us out of it. But there are problems, like GM and some other folks who could shock consumers into holding up their spending again....
They do mention the 1.2 trillion RECENTLY created.
Where to start: How about with the elephant in the room INFLATION:
The Fed recently created 1.2 trillion = $6000 x 200,000,000 tax payers. So if the average tax paying family will make 42000 this year then their real buying power is 36000/42000 = 6/7 of their spending power or they experienced a loss of 1/7 or 14%. If their income went up 4% (A healthy raise for the economic conditions) then they have 10% less spending power. No wonder consumers want to hold on to cash?
Of course this won't have any future negative effects so the article does not mention them. Actually the effects will not be felt as this is part of the 10 trillion, 50000 for every tax payer, created during the past year.
More stuff:
GM in its current state IS NOT a positive influence on the economy even if they employ several hundred thousand people. GM is NOT PROFITABLE. In other words the company takes inputs, applies its technology, distributes and sells a product that literally COSTS MORE than what GM sells it for. So this company creates negative wealth. Every employee for it is in the business of destroying the wealth of someone else. The best solution is to dissolve GM and let entrepeneurs buy what they can and toss the rest.
Hopefully they are wrong. I always have people slightly taunting me about the return of the market. If we do get out of this recession shortly, then they will all stand vindicated. I don't think that will be the case though.
BlackNumero: Hopefully they are wrong. I always have people slightly taunting me about the return of the market. If we do get out of this recession shortly, then they will all stand vindicated. I don't think that will be the case though.
We may continue to have a mini bull market rally, and stocks may even go back into 5-digit territory, but it will all be erroneous speculation based on government and central bank propaganda, and artificially good numbers due to the recent new burst of credit expansion. We will NOT "get out of this recession" shortly. We have hardly begun this recession.
The Treasury and the Federal Reserve have piled on sooo much malinvestment into lines that are so obviously unprofitable, that I won't even suspect that we've hit the trough until about a third of the banks have failed, the stock market is in perhaps the 3-4000 range, and unemployment is over maybe 15%. I think those are some fair estimations (though possibly too optimistic). Until durable goods prices really take a sustained hit and monetary base expansion stops, we ain't seen nothin' yet. Don't be fooled: the biggest bull rallies take place in the midst of the worst recessions.
"Anticapitalist theories share in common an inability to take human nature as it is. Rather than analyzing man as a complex creature, anticapitalist theories tend to focus on what the theorist wishes man to be." - Isaac Morehouse
BlackNumero:There were fresh signs Thursday that the full force of the recession may be petering out: a strong profit forecast from Wells Fargo, a drop in unemployment benefit filings and several retailers predicting solid April sales. On Wall Street, the Dow Jones industrials rose nearly 250 points.
-The profit forecast from Wells Fargo includes income from Wachovia which they acquired along with its bad assets. They are basically denying reality and have stopped writing down assets to realistic levels. Wells Fargo + Wachovia is still massively insolvent and even if by some miracle they somehow had massive profits for the next 5 years, they still would struggle to reach solvency because of the sheer amount of bad assets.
-Weekly unemployment benefits filings have fluctuated from week to week for the past 18 months, but the trend has never stopped being solidly upward.
-Several retailers "predicting" solid April Sales. Well, if I predict that I'm going to make a billion dollars next year, does that mean anything? To base a prediction of a recovering economy on the prediction of a recovering economy is circular reasoning.
-Lastly, using the stock market to gauge economic growth is laughable. Any intelligent person knows about the 1929 -1933 Dow chart of with its many sharp bear market rallies which were followed by equally sharp crashes.
Verdict: ABSURD
Road to recovery or road to serfdom?
Timmy SERPENT FINGERS Geitner and hid Fed cohorts are ushering out a flow of debt from their finger tips and the cursed are chasing afterward. This chasing of toxicants gives rise to proclamations of economic activity. Some will indeed swallow a few projectiles and direct their own queues to the crypt, but the whole of our nation will have a net reduction in life, liberty and the pursuit of happiness.
Their cash flows are headed toward horses and buggies and some will get to shovel more manure than others and they'll heap it's wondrous smell upon Timmy and thank him for the rescue. It's an unbearable stench to those on the roof of enlightenment, looking down with scorn. I abhor these wretched manure imbibing hideous fools. I hope the flies clog their lungs and they fall face down in their piles of dung.
"The best way to bail out the economy is with liberty, not with federal reserve notes." - pairunoyd
"The vision of the Austrian must be greater than the blindness of the sheeple." - pairunoyd