Data fuels hope for US economic recovery

Amid signs the battered US economy may be slowly reviving, the government was set to deliver a grim reminder Thursday of the depth of the recession that has dragged on for over a year.

The Commerce Department's final update on gross domestic product (GDP) for the 2008 fourth quarter was expected to show a staggering 6.6 percent annualized decline in a revision from last month's estimate of a hefty 6.2 percent drop.

Figures showing economic output for early 2009 will not be available for another month, but some analysts say signs are emerging that at least some areas of the economy have reached bottom, and could be ready to rebound.

Data Wednesday showed sales of new US homes rose a stronger than expected 4.7 percent in February, after six months of declines.

The gain was the latest in a series of positive surprises for the US housing market, which when it collapsed plunged the economy in recession in December 2007.

Earlier this week, industry figures showed a surprising rebound in sales of existing US homes in February, rising 5.1 percent. Last week, government data showed US home construction starts and permits up in February from 50-year lows.

Wednesday's figures suggested the market may have hit bottom in January when new homes sales fell to a revised annual pace of 322,000.

"Sales remain incredibly weak but ... we are prepared to hazard the view that the post-Lehman (Brothers) meltdown is now over and the market is stabilizing," said economist Ian Shepherdson at High Frequency Economics.

In another hopeful sign, the Mortgage Bankers Association said applications for home loans jumped 32.2 percent on a seasonally adjusted basis amid a rush to lock in low interest rates for home purchases and refinancing.

The group said the sharp drop in loan rates came after the Federal Reserve said it was pumping in hundreds of billions of dollars to buy bonds and other debt, in an effort to ease interest rates.

A separate report Wednesday showed orders for US-made durable manufactured goods unexpectedly rise for the first time in February, after six months of decline.

The 3.4 percent rise from January in sales of big-ticket items like automobiles, planes and appliances is the highest increase since December 2007 and surprised analysts who had expected a 2.4 percent decline.

"The recent change in the tone of data is unmistakable," said Brian Wesbury, economist at First Trust Portfolios.

"These reports signal that the recession is quickly losing steam and is consistent with our forecast that it will be over by mid-year, much earlier than the consensus expects."

Still, most economists were cautious about predicting a return to growth in the United States, where economic output fell a stunning 6.2 percent in the fourth quarter and expectations for the first quarter are equally grim.

Barclays Capital economist Michelle Meyer said the upticks in housing and manufacturing sales may be statistical quirks.

"We do not interpret today's (durable goods) report as a signal of the end of the downturn in manufacturing," she said in a note to clients.

Housing, Meyer said, is likely to remain weak in the coming months with inventories high, prices under pressure and consumers hit by rising unemployment.

Kathy Lien at Global Forex Trading said the signs are positive in areas such as consumer spending, jobless claims and manufacturing.

"Despite the doom and gloom outlook by some economists and the pessimistic feel on Main Street, recent economic data has shown signs of improvement," she said.

"Although this is partially due to the overly pessimistic forecasts, the data also suggests that the economy could be stabilizing."

Michael Jones, chairman at Riverfront Investment Group, remains guarded in his outlook for recovery.

"We believe that economic weakness will persist throughout 2009 and potentially into 2010," he said.

"Even our optimistic scenario suggests we will endure the deepest recession since 1946."

Jones said consumer spending, a key driver of economic activity, is unlikely to rebound anytime soon as Americans retrench in the face of a weak job market and boost savings.

"Government stimulus packages can help support economic growth during this difficult transition period, but are unlikely to fully offset such major changes in consumer spending habits," he said.