More pain, but signs of respite

Evidence is piling up that the worst part of the recession has ended. But that doesn't mean that the pain is over.

A better-than-expected unemployment report yesterday -- 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 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 Obama said yesterday that "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, the 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 of the pace -- about 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 such things as home building, commercial construction, equipment and software. And factories could then increase production to replenish razor-thin stockpiles of goods.

Many believe that the economy could start growing again by summer or, more likely, by the final quarter of this year, as the effects 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 yesterday'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.

Earlier this week, Federal Reserve Chairman Ben Bernanke gave his most optimistic prediction yet about the end of the recession. He said he expects the economy to start growing again this year

A burst of hiring by the federal government to prepare for the 2010 Census played a big role in the April improvement. Smaller payroll cuts at construction companies, factories, retailers and financial services also factored in.

The unemployment rate, however, climbed to 8.9 percent, the highest since late 1983. It will probably keep rising the rest of the year, even if monthly job losses continue to slow. Companies won't spring into hiring mode until they feel confident that an economic recovery is firmly rooted.

The Fed says that unemployment will remain elevated into 2011. Economists say that the job market may not get back to normal -- meaning a 5 percent unemployment rate -- until 2013.

If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate in April would have been 15.8 percent, the highest in records dating back to 1994. The total number of unemployed now stands at 13.7 million.

Still, a string of reports out this week suggested the recession is finally starting to lose its bite and the economy is stabilizing.

□ The number of newly laid-off workers filing applications for jobless benefits fell to the lowest level in 14 weeks.

□ Sales at many retailers fared better in April, with Wal-Mart Stores Inc. leading the way.

□ Construction spending rose in March, the first increase after five straight months of declines. An index of pending home sales also ticked up.

□ The U.S. services sector contracted in April at a slower pace than the prior month.