Despite a report by the
Federal Reserve Board that found five out of 12 of its banking districts reporting a moderation in the pace of economic decline, many experts aren’t ready to predict the beginning of a recovery.
Still, the Beige Book report, released this week, has added more weight to the predictions of some economists who believe that the United States could see economic growth as early as the fourth quarter of this year.
While the economy continued to decline last month, some districts reported signs of stabilization in sectors such as manufacturing and real estate.
“I think the worst is over for the
recession,” said Robert MacIntosh, chief economist at Eaton Vance Corp. of Boston. “It’s going to be less bad for the rest of the year.”
One key indicator is inventory levels, which have declined relative to sales orders, he said.
“When there is a perception that there is a turnaround about to happen, you will see that manufacturing will take off,” Mr. MacIntosh said.
“The economy is no longer in free fall,” said Jim Lowell, chief investment strategist for Advisor Investments of Newton, Mass.
“But this is part of the bottoming process. I would argue that the market did find a bottom in mid-February. But that doesn’t mean that we don’t bounce around.”
Any signs of stability in the report are isolated, some economists point out.
The report is “slightly less ominous,” said Dan LaPlante, senior vice president of the wealth management division of Providence, R.I. –based Citizens Financial Group, a subsidiary of the Royal Bank of Scotland in Edinburgh. “I don’t think it’s necessarily the beginning of a recovery. It’s more likely the beginning of the end of the decline. The worst of the
recession has passed, but we still have some decline to go.”
“I don’t think the
recession is over,” said Jim Swanson, chief investment strategist at MFS Investment Management of Boston. “When companies start to hire new workers, that’s when the
recession will end. And that’s probably going to be in the fourth quarter.”
The report included some signs that real estate markets may be stabilizing. “I don’t think [real estate] prices will stop going down until August,” Mr. Swanson said.
Housing prices are at the core of the problem, said Dave MacEwen, chief investment officer at
American Century Investments of Kansas City, Mo.
“Home prices continue to decline,” he said. “And that puts continued pressure on the consumer and the financial sector. We still haven’t turned the corner; not until we see home prices stabilize and start moving up.”
Another problem is consumer debt, Mr. MacEwen said.
“We see continued slow economic growth and recessionary-type conditions for at least a year,” he said.
Clearly, few are optimistic about the near-term.
“At this time, we may be floundering around the bottom,” said Oscar Gonzalez, an economist at John Hancock Financial Services Inc. of Boston. “All of the data suggests we are still sinking.”
While the rate of decline may slow, the economy is still facing more pain, he said.
“Things are still fairly bad,” said Mr. Gonzalez.
“It’s quite possible that things will get worse before they get better. But hopefully, you’ll see some positive growth in the third quarter, if not, then by the fourth quarter.”
But even isolated glimmers of stability could signal positive news ahead.
Steve Bleiberg, head of global asset allocation of the Baltimore-based Legg Mason Inc., expects corporate earnings to start to look better.
For the first time in more than 15 months, Legg Mason is considering increasing its equity allocation in some portfolios, he said.
“We haven’t moved on it yet, but we are seriously re-evaluating that position.”
