After months of nearly unmitigated gloom, glimmers of improvement are emerging in the U.S. economy.
On Thursday, retail sales figures showed that the decline in consumer spending that began with a miserable Christmas shopping season might be stabilizing. Wells Fargo & Co. surprised analysts by saying it expected to report a record first-quarter profit despite setting aside $4.6 billion for potential loan losses.
Wall Street celebrated by sending bank stocks soaring, and the Dow Jones index rising nearly 250 points.
What’s more, a report from the Commerce Department said the U.S. trade deficit declined unexpectedly in February as exports rose. It’s more evidence, some experts said, that the economy’s troubles may be easing.
Many analysts still expect job losses to continue through the end of the year and the U.S. unemployment rate -- which reached 8.5% last month -- to hit double digits before declining in 2010.
But while unemployment may continue rising, President Obama’s top economic advisor, Lawrence H. Summers, said there was no longer “that sense of a free fall” in the economy.
“There has been a substantial anecdotal flow over the last six to eight weeks of things that felt a little bit better,” said Summers, director of Obama’s National Economic Council.
As if to cap things off, San Francisco’s Wells Fargo, the biggest bank from a state that has become a national emblem for foreclosures and job losses, stunned Wall Street by predicting its earnings would be more than twice what analysts had forecast -- a record $3 billion in first-quarter profit.
Clearly benefiting from the low interest rates engineered by the government, Wells reported that its mortgage business was booming, with encouraging news about loans to buy houses as well as a tsunami of refinancings. It also said its takeover of Wachovia Corp., the Eastern banking giant that nearly collapsed last year after heavy mortgage losses and a run on deposits, was working out better than expected.
A report that all 19 of the nation’s largest banks were likely to pass the government’s so-called stress tests for financial health also buoyed confidence. The stock market reacted as if the news marked a turning point for the battered banking industry, and perhaps the larger economy.
An index of bank stocks was up 20% for the day. Wells shares, which fell briefly below $8 just over a month ago, jumped 32% to $19.61.
Bank of America Corp., which traded as low as $2.53 on Feb. 20, rocketed 35% to $9.55. The most gravely wounded major bank, Citigroup Inc., whose stock had traded for less than $1 at times in early March, was up 13% at $3.04.
The euphoria spilled over to the broader market, where the Dow Jones industrial average rose more than 3%, and the Standard & Poor’s 500 and the Nasdaq composite index rose nearly 4%. Since they hit 12-year lows March 9, the S&P; 500 is up 27% and the Dow, 23%. It’s the biggest rally since the bear market began 18 months ago.
The banking industry clearly must go through a long period of continued pain. It may eventually need hundreds of billions of dollars in additional aid from the government -- a pill that will be bitter for the country to swallow, said Mark Zandi, chief economist at Moody’s Economy.com.
But fears that the government would nationalize banks outright have waned, he said, an example of the improving state of economic affairs, with bits of good news playing counterpoint to the miserable overall situation.
“The downturn is still intense, but it’s no longer intensifying,” he said. “The economy continues to contract, but at a much slower rate. And there are some rays of sunshine, some signs of stability appearing.”
* New-home sales rose 4.7% in February, the first increase in seven months.
* Retail sales, although down 2.1% in March compared with last year, appeared to be “kind of treading water” after adjusting for technical factors, as an economist for a retail trade group put it. Many retail chains have improved their forecasts for future sales.
* Vehicle sales improved in March after what Zandi called an “abysmal” low in February.
* Exports rose in February for the first time since last July.
* Investment spending by business is strengthening, and acquisitions of major drug and home-building firms indicate that insiders in those businesses believe things are bottoming out, Zandi said.
* Initial claims for unemployment benefits fell more in early April than at any time since the beginning of the year.
Analysts warned that, despite the improvements, a U.S. recovery is far from certain. If unemployment continues to rise sharply, depressed consumer spending could wipe out profits in a host of industries, creating a new wave of troubles for banks and the economy -- a prospect that more pessimistic analysts contend is the likeliest scenario.
Mike Mayo, a bank analyst at Calyon Securities, said in a report this week that mortgage-related losses at banks are perhaps halfway to their peak. However, credit card and consumer losses are only one-third of the way to their expected high points, Mayo said. He projected loan losses could exceed levels from the Great Depression.
Despite the drop in initial jobless claims, a record number of Americans -- 5.84 million -- are receiving unemployment benefits. And the current pace of job losses still totals 650,000 a month, an alarmingly high figure, economist Zandi said.
“Hopefully we’ve seen the peak in unemployment claims, but I’m not sure we can conclude that’s the case,” he said. “If this continues into May and June, all these green shoots are going to get burned out.”
Michael Oneal in Washington contributed to this report.