Guarded optimism

String of not-so-bad news suggests that, for now, economic spiral is decelerating

March 26, 2009|By Annys Shin and Renae Merle | Annys Shin and Renae Merle,The Washington Post

WASHINGTON - 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 Wednesday, 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."

On Wall Street, the markets showed big gains early in the day, lost the gains in the middle and ended up 90 points. The day proved that Wall Street remains fragile despite a two-week rally that saw the Dow regain more than 1,000 points.

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 5 percent 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, should the Obama administration's plans to deal with those assets fail, banks will be unable to restart lending and the economy will fail to recover any time soon. 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 Associated Press contributed to this article.

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