US cautiously optimistic as signs of recovery emerge

WASHINGTON, D.C.: President Barack Obama sees “glimmers of hope” of economic revival and Federal Reserve chief Ben Bernanke detects “green shoots” of recovery, but amid the guarded optimism are concerns whether the United States can lead the world out of recession.

As credit markets thaw, signs of life emerge in the moribund housing market, retail sales get a modest bounce and claims for jobless benefits stabilize, worries remain that the recession, into its 16th month in April, will not give way to growth soon.

“Real GDP [gross domestic product] is falling rapidly, but we expect it to stabilize by about mid-2009,” said Ed McKelvey, a Goldman Sachs analyst, feeling the pulse of the world’s largest economy, which contracted 6.3 percent in the last 2008 quarter.

“However, the timing of the bottom in real GDP is highly uncertain, and recovery, when it does begin, will be anemic,” he said. Real gross domestic product is the inflation-corrected value of all goods and services produced.

Glimmers of hope

After huddling with his economic team at the White House on Friday, Obama pointed to increases in loans to small businesses, tax cut checks going out, new investments in infrastructure and energy projects and declared: “What we’re starting to see is glimmers of hope across the economy.”

“We’re starting to see progress, and if we stick with it, if we don’t flinch in the face of some difficulties, then I feel absolutely convinced that we are going to get this economy back on track,” Obama told reporters after meeting top economic policymakers and financial regulators at the White House.

But the president, who at the end of April will have completed his first 100 days in office, warned, “the economy is still under severe stress.”

“And right now we’re still seeing a lot of job losses, a lot of hardship, people finding themselves in some very difficult situations,” he added.

“We still have a lot of work to do, and over the next several weeks you’ll be seeing additional actions by the administration,” he said.

Adding to the recovery optimism, top Obama economic advisor Lawrence Summers said that the “free fall” in the economy was likely to end in the next few months.

According to a survey by the Wall Street Journal released last week, private economists expect the US recession to end in September, though most say it would not be until the second half of 2010 that the economy recovers enough to bring down unemployment.

“The end of the decline isn’t the beginning of the recovery,” economist David Resler of Nomura Securities said. “It’s like a boxing match. Even if you win the fight, it’s not going to feel as good when you get out of the ring as when you went in.”

The economists surveyed forecast GDP to contract in the first and second quarters of this year by 5 percent and 1.8 percent, respectively, on a seasonally adjusted annualized rate. A modest return to growth is not expected until the third quarter.

More than a third of the 53 economists polled expect the jobless rate to peak in the first half of 2010.

By December of this year, the economists on average expect the unemployment rate to hit 9.5 percent, up from the 8.5 percent in March.

Fed forecast

Federal Reserve chief Bernanke and his policymakers at their meeting three weeks ago stared down grim forecasts that were sharply lower than the outlook at their January meeting, according to minutes of the talks released last week.

They believe the economy will begin to grow again “slowly” next year instead of the second half of 2009, as they had expected in January.

Even as the central bankers remain cautious, Wall Street shares are rising, kindling hopes that the worst is over.

The market buoyancy came despite concerns that the financial system has not been cleansed yet of its “toxic assets”—believed to be several trillions of dollars of soured mortgage-based securities, a key source of global turmoil.

The US stock rally entered its second month last week also despite an anticipated seventh straight quarter of declining profits for companies in the January to March period and prospects of more companies going bankrupt.

“Equity prices are up sharply, but the debt market continues to indicate a high probability of default,” warned Simon Johnson, a professor at the Massachusetts Institute of Technology (MIT).

“In particular, the level and recent trajectory of credit default swap spreads suggest that, as the financial system as a whole stabilizes, market participants expect increasing odds of failure [and failed bailout attempts] for the very largest banks,” he said.

While government attempts to stabilize short-term credit markets have been somewhat successful, conditions in short-term funding markets have tightened recently, said Joseph Brusuelas, director at Moody’s Economy.com.

“The Fed will have to remain vigilant in its pursuit of financial stability,” he said. “Should markets experience a setback, recovery could be delayed beyond late 2010 and early 2011.”
— AFP With Xinhua