How will we know when economy has escaped its funk?
Experts will look at a variety of barometers that they say could show a rebound.
WASHINGTON (AP) — With any luck, the second half of this year will be better than the so-far rocky first half. The Federal Reserve chief hopes that is the case. So does President Bush.
For the rest of us mere mortals, it feels like the pain is getting worse.
When the economy begins to snap out of its funk, how will we know?
Like calling a recession, pinpointing the turnaround can be as much art as science. Economists agree there could be some strong signals to look for, however: A calmer stock market, an end to falling home prices and more jobs being created.
We’re not there yet.
The economy by all accounts is suffering through difficult times, although some economists have backed off their recession talk. Economic growth has slowed sharply and employers have cut jobs for four months in a row as problems in housing, credit and financial markets forced skittish people and businesses alike to hunker down.
Even though a Labor Department report Thursday showed the number of newly laid off workers filing for unemployment benefits dropped last week to the lowest level in a month, claims remain high enough to indicate the labor market is sluggish.
Still, there’s hope that the economy’s growth will begin picking up later this year.
Experts will be looking at a variety of barometers to mark the arrival of a rebound, but it’s by no means definitive or foolproof.
One important indicator is the stock market. The turbulence that has engulfed Wall Street since last summer and hit a crisis point with the near collapse of investment firm Bear Stearns, has calmed somewhat, but the situation is still “far from normal,” Fed Chairman Ben Bernanke recently observed.
In the current bout of economic troubles, though, fallout from the two-year-old housing collapse and subsequent credit and financial problems has driven the pullback by consumers, businesses and Wall Street.
That’s why economists — this time around — will be looking for signs of stabilization in the housing market. Specifically, house prices will have to stop falling or at least decline at a slower pace in many parts of the country. As many Americans have watched their single-biggest asset — their home— shrink in value, they have become much more cautious in the spending, contributing to the economy’s slowdown.
On Thursday, the Office of Federal Housing Enterprise Oversight said U.S. home prices fell 3.1 percent year-over-year in the first quarter, the largest drop in the 17-year history of tracking the data.
House-price improvements also are important to a return to stability because house prices figure into the value of a host of securities, such as mortgage securities and derivatives.
And, improving house prices also would ripple through credit markets, making lenders more willing to make loans to people and businesses. That, in turn, would help bolster confidence in financial markets, economists said.
Analysts also will be looking for zooming gasoline and other energy prices to settle down. An easing of high food and other commodity prices also would be welcomed. High prices, especially for energy, are taking a bite out of paychecks, undermining consumer purchasing power, and putting a squeeze on businesses’ profits.