It may be a false dawn, but recent data are providing mounting evidence that the U.S. economy is edging toward the long road back to recovery.
The freshest evidence came with the government’s monthly report on the jobs market for April, when some 539,000 jobs were lost. Though hardly good news by itself, that pace is slower than the steep slide that has thrown roughly 5.7 million people out of work since the recession began 15 months ago.
With similar “green shoots” sprouting up in other measures of the economy —falling inventories, rising home sales and increased consumer confidence — some economists tentatively have begun to say the economy may be near a turning point.
"This (monthly jobs number) will be the last really bad economic statistic in this downturn," declared Mark Zandi, chief economist at Moody's Economy.com. "We'll look at other negative numbers, but this will be the last bad one."
President Barack Obama acknowledged some of the green shoots Friday, while at the same time warning Americans to "expect further job losses in the months to come."
"Although we have a long way to go before we can put this recession behind us, the gears of our economic engine are slowly beginning to turn," Obama said in a speech in Washington on education for the unemployed.
"Step by step we're beginning to make progress," he said.
The number of jobs lost in April was the lowest since October, although still high by normal standards. With a half-million more people out of work, the unemployment rate in April rose to 8.9 percent, the highest since September 1983, up from 8.5 percent in March.
In addition, the job market was worse than originally reported in February and March, according to revised data released Friday. The economy lost 699,000 jobs in March, up from the 663,000 originally reported, and 681,000 jobs were lost in February, up from the original 651,000.
The April jobs data followed a series of reports that show a job market that is still dismal but improving. New unemployment claims, though still very high, are down from peak levels.
“The improvement (in jobs) was widespread across all the major industries that we look at and across all the sizes of payrolls that we look at,” said Joel Prakken, Chairman at MacroEconomic Advisors, which prepares a private job report that also showed improvement. “But let's remember two things: One month does not a trend make and the green shoot is trying to put down roots in very inhospitable terrain. This is still a large decline in employment.”
Evidence of a possible turning point goes beyond job market data. Though the gross domestic product, the overall growth benchmark, declined at a 6.1 percent pace in the first quarter, there were positive signs within the report. Much of the drop came from falling inventories. With less unsold goods on hands, companies will be able to raise production quickly once demand bounces back.
Forecasters also have been looking for signs of a turn in housing. Since the collapse of the housing bubble sparked the recession, the economy can’t stabilize until the housing industry does. Though residential construction continued to plunge in the first quarter, the slide in home sales, housing starts and permits is slowing.
The Fed’s aggressive efforts to push mortgage rates lower, combined with the continued decline in housing prices, has the housing industry hopeful that after three years of misery, spring may be returning this year.
"You have tremendous demand coming from people who are entering the housing marketplace," said Joel Miller, of Wall Street Capital Funding, which finances home construction. “Right now those people are really going benefit from the stimulus and other things out there — especially low housing prices.”
A pickup in home sales typically spills over into retail sales as home buyers shop for appliances and furnish their new home. Though credit for such purchases remains extremely tight — consumer credit in March fell at the fastest pace in 18 years — consumer spending rose a better-than-expected 2.2 percent the first quarter after falling 4.1 percent in the second half of 2008. Retail sales perked up in April; discounter Wal-Mart Stores and others reported results that beat expectations.
“The evidence is growing that the recession may be bottoming out in the second quarter,” said John Ryding, chief economist at RDQ Economics.
Hopes for a turnaround follow the government’s massive response to the economy’s steep slide. Since last year, Congress has committed over $1 trillion in fresh government spending and the Fed has unleashed trillions of dollars more in lending and loan guarantees. That surge of cash is now beginning to work its way through the economy and is offsetting the trillions in lost wealth from the collapse of the stock and housing markets.
The hope is that once public money has jump started the economy, private investment will start flowing again. That would take up the slack from the lingering impact of the collapse in lending that accompanied the worst of the financial panic last fall.
Once the freefall ends, the long task of rebuilding will begin. Despite the government’s pledge to prevent another major bank failure, the results of the Treasury’s “stress tests” released Thursday show that many of the nation's biggest banks need to raise more capital to survive continuing losses on bad loans and real estate investments. Until the banks are back on a sound financial footing, it will remain difficult for businesses and consumers to get credit.
That means when the “recovery” comes, it will likely be very weak, according to many economists.
“We've gotten far ahead of ourselves in believing we'll have a very strong second-half recovery,” said Joseph Lavorgna, chief U.S. economist at Deutsche Bank Securities. “I don’t see it. I think what we'll get is a flattish kind of recovery by late in the year and the recovery really doesn't begin until next year at this time.”
Even though the pace of job losses appears to be slowing, the unemployment rate is expected to continue to rise as companies shed jobs and avoid hiring in the early stages of the recovery. Those job losses also will weigh on consumer spending and home sales. Some forecasters caution that that even if the economy begins growing again in the second half, unemployment may not peak until well into next year.
That will also make any recovery feel weaker than it otherwise would. Once the monthly job numbers move back to positive territory, the job market will have a huge overhang of the almost 6 million jobs lost since the recession began. That’s on top of the roughly 100,000 to 125,000 new jobs that are needed just to keep up with the growth in the population.
It also remains to be seen how quickly the rest of the world follows the United States out of the global economic downturn. Without growth overseas, U.S. exporters will have a tough time getting back on their feet. Unless other parts of the world match the efforts by U.S. companies to cut production capacity, there may be too many goods chasing too little demand.
“That’s one of the risks to the global economic recovery,” said New York University economist Nouriel Roubini, at RGE Monitor. “There’s been overinvestment in the last few years in capacity by China and other emerging markets, so there is excess global capacity at a time when global demand is falling — consumption, investment, residential, you name it. And therefore the global recovery is going to be weaker than otherwise.”
It also remains to be seen how Federal Reserve officials deal with the unwinding of the biggest expansion of monetary supply in its 95-year history. If that flood of money remains in the financial system too long, it could spark another round of inflation. If drained off too quickly, it could snuff out the recovery before it generates enough momentum to sustain itself. And if global investors begun to move money out of long-term Treasury debt, the Fed could face stiff headwinds as it tries to keep a lid on interest rates.
“We're still in an uncertain situation,” said Yale University economist Robert Shiller. “Right now it's looking good. But these things can reverse themselves.”