Is recession coming to an end? Some signs the worst may be over

WASHINGTON — The jobless rate is expected to tick up this week and continue climbing for months, a crisis in commercial real-estate looms and the latest survey of bank lending suggests it's still pretty difficult to get a new mortgage.

So it may sound surprising that some forecasters see an imminent end to the recession.

"The rate of decline in the second and third quarter, if indeed we have a decline, is going to be much more slight than what we've seen in the last couple of quarters," said Peter Kretzmer, an economist with Bank of America in New York. He believes the economy is beginning to turn.

In a May 1 commentary, forecaster RDQ Economics was more direct. The weekly forecast headline asked, "Is the Recession Drawing to a Close?"

The answer, according to RDQ's chief economist, John Ryding, is yes. He believes the liquidation of inventories by business was as large as any in past recessions. This emptying of warehouses and showrooms points to future spending by businesses to restock shelves for an expected rise in consumption.

"Inventories sliced 2.8 percentage points off growth in the first quarter, but if inventory liquidation has peaked, then this drag on growth will disappear in the second quarter," Ryding wrote.

RDQ is advancing its earlier forecast that the recession will end late this year. One reason is the Institute for Supply Management's manufacturing index has risen four consecutive months and is nearing levels that point to an economic expansion.

Similar manufacturing indexes in China show the same kind of signals. That suggests the world's two engines for economic growth are picking up steam.

As the global economy returns to growth, that's good news for American exports, which kept the U.S. economy out of recession for much of 2007 and prevented the current downturn from being even worse last year.

Testifying Tuesday before the Joint Economic Committee of Congress, Federal Reserve Chairman Ben Bernanke said the global downturn was moderating and that he expects a return to growth late this year.

Some private forecasters think the recession's end may come even sooner.

"The data suggest that the recession may end sooner than our forecast of a fourth-quarter bottom in economic activity," wrote Ryding, who cautioned it won't be the start of a new boom.

"Very anemic recovery"

"Even if the recession finishes earlier than we were expecting, we still expect a very anemic recovery over the next year and the [high] unemployment rate is likely to continue well into 2010."

That's a view shared by Mark Vitner, a senior economist for Wachovia in Charlotte, N.C. He forecasts unemployment to reach as high as 11 percent but believes the recession will draw to a close after September.

"I feel certain that the recession is not yet over, but I think we are moving toward some resolution on it," he said. "Maybe the recession ends late third quarter or early fourth quarter. But it is still going to be in the latter part of 2009. We're not going to wake up tomorrow and find everything is fine again."

Forecaster Ed Yardeni, of Yardeni Research, is even more bullish.

He now believes the economy will shrink at only a 1.2 percent annual rate in the current quarter, rebound to a 5.3 percent annual growth rate in the July-September quarter, and then have a 3.3 percent growth rate in the final quarter of 2009.

If the recession indeed is drawing to a close, most Americans won't notice. The unemployment rate is expected to rise Friday beyond its current 8.5 percent; most projections put it at least up to 8.9 percent this week then well beyond in coming months.

Underemployed

Millions of other Americans remain underemployed, working two or more jobs to make ends meet.

Problems in credit markets remain a significant risk. A huge number of commercial mortgages will come due for renewal this year and during the next two years, and they may be unable to qualify for refinancing.

That could layer a commercial-mortgage crisis on top of the residential one, which brought a collapse in home prices to many parts of the nation.

On Monday, credit-rating agency Moody's Investors Service reviewed the entire range of complex bundles of commercial mortgages it rates. Moody's downgraded virtually all these securities — a combined value of almost $53 billion — reflecting concerns that a large number of commercial mortgages will either default or not qualify for refinancing.

It all suggests that even when the recession has ended, good times won't return right away.

"We're no longer looking into the abyss," Vitner said. "We can deal with this; we can deal with the cards we have now."