Archive for Wednesday, April 29, 2009

Economy’s free-fall probably easing

April 29, 2009

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— The recession’s grip on the country may be letting up a bit.

The government is set to release a report today expected to show the economy shrank at a pace of 5 percent in the first three months of this year. If Wall Street analysts’ forecasts’ are correct, the figure — while still extremely weak — would be viewed as a hopeful sign that the worst of the recession — in terms of lost economic activity — may be past.

“The recession is easing up,” said John Silvia, chief economist at Wachovia. “We’re probably bottoming out here in the first half of this year.”

The economy in the final three months of last year logged its worst downhill slide in a quarter-century, contracting at a 6.3 percent annual rate as nervous American consumers ratcheted back spending in the face of rising unemployment, falling home values and shrinking nest eggs.

The less steep decline in economic activity anticipated by analysts in the January-March quarter is based on the expectation that shoppers at home and abroad didn’t pull back quite as much at the start of this year.

Consumer spending, which accounts for roughly 70 percent of national economic activity, is still expected to be negative. But it will probably log a small dip versus the big 4.3 percent annualized decline seen in the final three months of 2008. The same rationale would hold for sales of U.S. exports, which have been crimped as economic troubles in other countries force foreign buyers to be cautious.

Many analysts predict the economy will shrink even less in the current April-June period — at a pace of 1 percent to 2.5 percent. Tax cuts and increased government spending on big public works projects included in President Barack Obama’s $787 billion should help bolster economic activity. Analysts hope the economy will actually start to grow again in the final quarter of this year.

However, the recent outbreak of the swine flu, which started out in Mexico and has spread to the United States and elsewhere, poses a new potential danger. If the flu stifles trade and forces consumers to cut back further, those negative forces would worsen the recession.

Before the flu outbreak, Federal Reserve Chairman Ben Bernanke said the recession could end this year if the government succeeds in stabilizing the shaky financial system and getting banks to lend again.

To combat the worst financial crisis since the 1930s, the Fed has slashed a key bank lending rate to a record low near zero and rolled out a string of radical programs to spur lending. The Fed at the end of its two-day meeting today is expected to keep its key rate near zero.

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