Washington Evidence is piling up that the worst part of the recession has ended. But that doesn’t mean the pain is over.
A better-than-expected unemployment report Friday — job losses declined to the lowest level in six months — capped a week of encouraging news, including firmer home sales, a revival in consumer spending and fresh optimism about the biggest U.S. banks.
The economy remains vulnerable to further shocks, and 13.7 million people are unemployed. The jobless rate rose to 8.9 percent in the new report and still seems headed for a stinging 10 percent.
Yet confidence is building that the recession, the longest since the Great Depression, will end this summer or fall, setting the stage for a slow recovery.
Pointing to recent improvements, President Barack Obama said Friday “the gears of our economic engine do seem to be slowly turning once again.”
By some measures, the darkest months have passed. The plunges in economic activity and rising waves of layoffs, seen from the end of 2008 through the start of this year, seem to have subsided.
“The winds are still howling, but I think we can see the sunlight on the distant horizon,” said Mark Zandi, chief economist at Moody’s Economy.com. “Clearly, the job losses are moderating.”
Wall Street investors could see the sunlight, too. The Dow Jones industrials gained nearly 165 points and finished 4.4 percent higher for the week. It was the eighth gain for the index in nine weeks.
The economy probably is still shrinking in the current quarter but only at about half the pace — around 3 percent — that it had in the prior six months, the worst in 50 years. Businesses are expected to be cutting back far less on things like home building, commercial construction, equipment and software. And factories could then boost production to replenish razor-thin stockpiles of goods.
Many believe the economy could start growing again by summer or, more likely, by the final quarter of this year, as the impact of tax cuts and increased government spending on big public works projects contained in Obama’s $787 billion stimulus package takes hold.
Job losses are expected to continue through the rest of the year, but are likely to be smaller in number.
Losses averaged 700,000 a month in the first quarter but dropped to 539,000 in April, according to Friday’s Labor Department report. They should average around 500,000 in the current quarter and taper off to 250,000 a month in the final quarter of the year, according to some projections.
That’s probably cold comfort to Tara Barrone, 28, of McLean, Va., who was checking out job prospects at the Secret Service at a career fair Friday.
“Government jobs are popular because of the sense of stability,” she said. “I know I’m looking for a sense of security and permanency after being laid off twice in the last year.” The lines at the Secret Service booth were much longer than at other recruiters.
Federal Reserve Chairman Ben Bernanke earlier this week gave his most optimistic prediction yet about the end of the recession. He said he expects the economy to start growing again this year — though the comeback could be weak and more jobs will disappear even after a recovery takes hold.