In Housing and Other Big-Ticket Markets, Early Stirrings of Hope
Thursday, March 26, 2009; Page D01
After several months of relentlessly grim economic news, analysts have been looking for any indication that the pace of the economy's deterioration is slowing. Recently, they have had at least some reason to hope.
The latest encouraging signs came yesterday, with the government reporting that orders for machinery and equipment posted surprising gains last month and that more buyers, lured by low prices, returned to the housing market. Orders for durable goods were still relatively weak, and home sales were down 41 percent from a year earlier.
But analysts responded favorably nonetheless.
"We're no longer in free fall," said Patrick Newport, a U.S. economist for IHS Global Insight. "Things are getting worse a little bit at a time."
To be sure, even the most optimistic forecasters said the nation is still deep in recession. Most experts predict that the economy will shrink in the first quarter at an annualized rate of about 5 or 6 percent, similar to the last three months of 2008. The economy continues to shed jobs at a pace of 500,000 to 600,000 a month. And more cuts are likely as businesses, saddled with stockpiles of unsold goods, scale back production.
The nation's banks are still weighed down by toxic assets, and some financial experts fear that if the Obama administration's plans to deal with those assets were to fail, banks would be unable to restart lending and the economy would fail to recover anytime soon. Massive problems in the financial sector could make things even worse.
What gives some economists hope is a recent string of not-so-bad news that suggests, at least for now, that the recession is not getting worse. Retail sales, for instance, have held steady recently. And there are signs that the housing market is stabilizing.
The number of newly issued residential building permits, which offers a glimpse of construction activity in coming months, ticked up 3 percent in February from January. Existing-home sales were up 5.1 percent, according to industry data released this week. And yesterday, government data showed that sales of new single-family homes increased 4.7 percent, the first increase in that market in seven months.
"Between the new and existing-home figures, we have seen a little bit of a pulse showing up in a patient that was thought to be terminal," said Mike Larson, a housing analyst at Weiss Research.
The positive signs in the housing market are particularly encouraging. It was the housing bust that led the nation into recession, and for months analysts have said that a recovery in the market will be key to leading the nation out of recession.
Analysts said buyers are being enticed back into the market by plummeting home prices, along with historically low mortgage rates and an $8,000 tax credit for first-time home buyers in the stimulus package.
"There are some pieces of information that reconfirm that we are very near the bottom. . . . I want to see a couple more before I am confident that this truly the bottom," said David Crowe, chief economist for the National Association of Home Builders.
Forecasters, for their part, stress that even after the worst is over, the economy will be fragile for some time. Recovery is expected to be weak, especially in the housing market, because there's so much excess inventory. Consumers are still deeply in debt, unemployment is still on the rise, and countries around the world remain mired in recession, crippling demand for U.S. goods.
"Businesses have a ways to catch up to weak demand over last six months, so business spending will be extremely weak. . . . Exports will fall further as the global economy falls," said Scott Anderson, an economist with Wells Fargo. "But this increases the odds the economy will start growing at the end of this year."