After several months of relentlessly grim economic news, analysts have been looking for any indication that the pace of the economy’s deterioration is slowing. Recently, they have had some reason to hope.
The latest encouraging signs came Wednesday, with the government reporting that orders for machinery and equipment posted surprising gains last month and that more buyers, lured by low prices, returned to the housing market.
Orders for durable goods were still relatively weak, and home sales were down 41% from a year earlier. But analysts responded favorably nonetheless.
“We’re no longer in free fall,” said Patrick Newport, a U.S. economist for IHS Global Insight. “Things are getting worse a little bit at a time.”
Even the most optimistic forecasters said the nation was still deep in recession. Most experts predict that the economy will shrink in the first quarter at an annualized rate of about 5% or 6%, similar to the last three months of 2008. The economy continues to shed jobs at a pace of 500,000 to 600,000 a month. More cuts are likely as businesses, saddled with stockpiles of unsold goods, scale back production.
The nation’s banks are still weighed down by toxic assets, and some financial experts fear that, should the Obama administration’s plans to deal with those assets fail, banks will be unable to restart lending and the economy will fail to recover any time soon. Massive problems in the financial sector could make things even worse.
What gives some economists hope is a recent string of not-so-bad news that suggests, at least for now, that the recession is not getting worse. Retail sales have held steady recently. And there are signs that the housing market is stabilizing.
The number of newly issued residential building permits, which offers a glimpse of construction activity in coming months, ticked up 3% in February from January. Existing-home sales were up 5.1%, according to industry data released this week. Government data showed that sales of new single-family homes increased 4.7%, the first increase in that market in seven months.
“Between the new and existing-home figures, we have seen a little bit of a pulse showing up in a patient that was thought to be terminal,” said Mike Larson, a housing analyst from Weiss Research.
The positive signs in the housing market are particularly encouraging. It was the housing bust that led the nation into recession, and for months analysts have said that a recovery in the market will be key to leading the nation out of recession.
Analysts said buyers were being enticed back into the market by falling home prices, along with low mortgage rates and an $8,000 tax credit for first-time home buyers in the stimulus package.
“There are some pieces of information that reconfirm that we are very near the bottom,” said David Crowe, chief economist for the National Assn. of Home Builders.
Shin and Merle write for the Washington Post.