By Bob Willis
July 27 (Bloomberg) -- The worst U.S. recession in five decades probably eased in the second quarter as trade and government stimulus mitigated the damage from declines in housing, inventories and consumer and business spending, economists said before a report this week.
The world’s largest economy shrank at a 1.5 percent pace following a 5.5 percent drop in the first three months of 2009, according to the median forecast of 66 economists surveyed by Bloomberg News ahead of Commerce Department figures due July 31. Other reports may show orders for long-lasting goods fell and sales of new houses rose.
Leaner stockpiles set the stage for a return to growth this quarter as manufacturing and homebuilding stabilize, while efforts to revive demand globally boost exports. Consumer spending, which accounts for 70 percent of the economy, may be slower to recover as unemployment is projected to keep rising and home values are likely to fall further.
“The recession is entering its final hours as the credit markets have mended and the record fiscal stimulus works its way through the system,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This could well be the last quarterly decline of real GDP for this recession. The outlook is a positive one for the second half of the year.”
A drop last quarter would be the fourth consecutive decrease in GDP, the longest losing streak since quarterly records began in 1947. The decline so far has been the deepest since 1957-58.
GDP Revisions
The Commerce report will also include GDP revisions that may affect figures going back to when the government started keeping annual records in 1929.
Stocks rallied last week and bond prices fell on signs the economy was bottoming. The Dow Jones Industrial Average broke above 9,000 for the first time since January, gaining 4 percent over the five days to end the week at 9,093.24. Ten-year Treasury notes posted a second weekly loss, yielding 3.66 percent late on July 24.
Orders for durable goods last month fell 0.6 percent, economists project another report from Commerce on July 29 will show. Bookings rose in the prior two months. Excluding demand for transportation equipment, which is often volatile, orders were forecast to be little changed.
Machinery exporters are among those seeing signs of improvement. Caterpillar Inc., the biggest maker of earthmoving equipment, posted second-quarter profit that exceeded analysts’ highest estimate and raised its full-year forecast, saying stimulus programs are starting to support global demand.
Stimulus Working
“We are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,” Chief Executive Officer Jim Owens said in a statement July 21. “Credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work.”
The economy will grow at an average 1.5 percent rate in the last six months of the year, according to economists surveyed by Bloomberg in the first week of July. Unemployment, which reached a quarter-century high of 9.5 percent in June, will top 10 percent by the first three months of 2010, the survey showed.
The projections are in line with estimates by Federal Reserve policy makers.
“The pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization,” Fed Chairman Ben S. Bernanke told Congress last week. “The labor market, however, has continued to weaken.”
Housing, Manufacturing
Both manufacturing and housing are showing signs of forming a bottom. Existing home sales have risen for three months, while the Institute for Supply Management’s gauge of factory activity has shown a lessening pace of contraction since January.
New-homes sales probably rose 2.9 percent in June, to a 352,000 annual rate, economists surveyed projected a Commerce report on July 27 will show. Purchases reached a record low in January.
Home prices continue to fall, albeit at a slower pace. The S&P/Case Shiller index of 20 major metropolitan areas, due July 28, will probably show property values fell 17.9 percent in May from a year earlier, according to the median forecast. The measure was down 18.1 percent in the 12 months ended April.
Dropping real-estate prices and rising joblessness have tattered household finances. A survey from the New York-based Conference Board on July 28 may show consumer confidence fell in July for a second month, the survey showed.
Finally, the Federal Reserve on July 29 will issue its compendium of regional economic anecdotes known as the Beige Book. Central bankers will use the survey at their next meeting in August to help formulate policy.
Bloomberg Survey
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Release Period Prior Median
Indicator Date Value Forecast
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New Home Sales ,000’s 7/27 June 342 352
New Home Sales MOM% 7/27 June 2.7% 2.9%
Case Shiller Monthly YO 7/28 May -18.1% -17.9%
Case Shiller Monthly In 7/28 May 139.2 138.6
Consumer Conf Index 7/28 July 49.3 49.0
Durables Orders MOM% 7/29 June 1.8% -0.6%
Durables Ex-Trans MOM% 7/29 June 1.1% 0.0%
Initial Claims ,000’s 7/30 18-Jul 554 580
Cont. Claims ,000’s 7/30 11-Jul 6225 6300
GDP Annual QOQ% 7/31 1Q A -5.5% -1.5%
Personal Consump. QOQ% 7/31 1Q A 1.4% -0.5%
GDP Prices QOQ% 7/31 1Q A 2.8% 1.0%
Core PCE Prices QOQ% 7/31 1Q A 1.6% 2.4%
Employ Costs QOQ% 7/31 2Q 0.3% 0.3%
Chicago PM Index 7/31 July 39.9 43.0
NAPM Milwaukee Index 7/31 July 50.0 52.0
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To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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