It will be months before it’s clear whether what Federal Reserve Chairman Ben S. Bernanke calls the U.S. economy’s “green shoots” represent the early onset of recovery, or a false spring.

The Labor Department’s April 3 report that the economy shed an additional 663,000 jobs last month, while the unemployment rate rose to 8.5 percent, will be followed by months more of bad-news headlines, economists say. The recession, now in its 17th month, has already cost 5.1 million Americans their jobs, the worst drop in the postwar era; unemployment may hit 9.4 percent this year, according to the median estimate in a Bloomberg News survey, and may top out above 10 percent in 2010.

The risk is that the jobs picture turns even more bleak than forecast or the drumbeat of bad news still to come causes consumers, whose spending has firmed up in recent months, to hunker down again.....

By Scott Lanman
April 15 (Bloomberg) -- The U.S. contraction slowed across
several of the Federal Reserve’s biggest regional economies last
month, with some industries “stabilizing at a low level,” the
central bank said in its regional business survey.
Five of 12 Fed district banks “noted a moderation in the
pace of decline,” the Fed said today in its Beige Book release,
published two weeks before officials meet in Washington to set
monetary policy. Other banks weren’t as positive, with the
Atlanta district, the Fed’s second-biggest regional economy,
reporting “activity remained weak in March.”
The report backs Chairman Ben S. Bernanke’s assessment
yesterday that the U.S. economy’s decline may be slowing,
signaling the possible beginning of a recovery from what may be
the worst recession since World War II. U.S. industrial capacity
in use fell last month to at least a 42-year-low, while consumer
prices in March had their first annual drop since 1955.
Retail sales showed a “slight improvement” in some
regions, and there was a “scattered pickup” in home buying,
the Fed report said. At the same time, many district banks saw
drops in manufacturing, non-financial services, business travel
and employment, the central bank said.
The Fed regional banks reporting a slower decline or signs
of stabilization include the San Francisco district, which has
the largest portion of the U.S. economy, as well as New York,
Chicago, Kansas City and Dallas.
The report reflects information collected through April 6
and summarized by staffers at the Dallas Fed. The Federal Open
Market Committee next meets in Washington April 28-29.
Economists surveyed by Bloomberg News estimate that the
pace of economic contraction eased in the first quarter of this
year from the 6.3 percent annual rate in the final three months
of 2008.
The Fed decided at its last policy meeting March 17-18 to
buy as much as $300 billion in Treasuries and more than double
purchases of housing debt to $1.45 billion in a bid to reduce
costs of home loans and other borrowing. Two weeks earlier, the
Beige Book said 10 of 12 Fed banks reported “weaker conditions
or declines” in their regional economies.

For Related News and Information:
Federal Reserve links: FED <GO>
Credit crunch page: WWCC <GO>
Fed balance-sheet figures: ALLX FARW <GO>
Government relief programs: GGRP <GO>
Fed monetary policy: FOMC <GO>
Fed Web links: FRBM <GO>
Central bank rates worldwide: CBRT <GO>

Retail sales dropped sharply in March, the government reported, and wholesale prices fell steeply. Both pieces of data underscore the hard slog the nation faces to emerge from its deep recession and the limitations of more optimistic talk from Washington. The stock market fell 2 percent, as measured by the Standard & Poor’s 500-stock index. …

And the latest economic readings yesterday underscored that conditions remain weak. Retail sales fell 1.1 percent in March, compared with the previous month. Analysts had expected a slight gain.

The Commerce Department said that sales fell among every type of retailer except food and beverage and personal-care stores. The largest decrease was at electronics and appliance stores, which dropped 5.9 percent. Auto sales fell 2.3 percent compared with February, while clothing stores were down 1.8 percent.

When compared with the same month last year, total March sales dropped 9.4 percent.

The global economy is in a severe recession inflicted by a massive financial crisis and an acute loss of confidence. Wide-ranging and often unorthodox policy responses have made some progress in stabilizing financial markets but have not yet restored confidence nor arrested negative feedback between weakening activity and intense financial strains. While the rate of contraction is expected to moderate from the second quarter onward, global activity is projected to decline by 1.3 percent in 2009 as a whole before rising modestly during the course of 2010.

After a series of historic lows, the Architecture Billings Index (ABI) was up more than eight points in March. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the March ABI rating was 43.7, up from the 35.3 mark in February. This was the first time since September 2008 that the index was above 40, but the score still indicates an overall decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry score was 56.6.

“This news should be viewed with cautious optimism,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “The fact that inquiries for new projects increased is encouraging, but it will likely be a few months before we see an improvement in overall billings. Architects continue to report a diversity of business conditions, but the majority is still seeing weak

There is no doubt where the economy is now. "By any measure, this downturn represents by far the deepest global recession since the Great Depression," the International Monetary Fund declared Wednesday.

But there's more than the usual uncertainty about where it is going. The key is the U.S. Even though its slice of the world economy is smaller than it once was, it's still huge. The U.S. led the world into the abyss, and it will lead the world economy out of it.

But how fast and when?

The alphabet can help to imagine the possibilities and the path of the economy. There's the letter V: the kind of quick rebound that usually follows a deep recession. Or U: a longer recession and slow recovery. There is L: years of painfully slow growth. And W: a temporary upturn as the economy feels the jolt of fiscal stimulus that quickly wears off. Finally, there's the big D, not the shape but another Great Depression.

With history a guide, consider three starkly different scenarios.....

THE rays are diffuse, but the specks of light are unmistakable. Share prices are up sharply. Even after slipping early this week, two-thirds of the 42 stockmarkets that The Economist tracks have risen in the past six weeks by more than 20%. Different economic indicators from different parts of the world have brightened. China’s economy is picking up. The slump in global manufacturing seems to be easing. Property markets in America and Britain are showing signs of life, as mortgage rates fall and homes become more affordable. Confidence is growing. A widely tracked index of investor sentiment in Germany has turned positive for the first time in almost two years.

All this is welcome—not least because the slump has been made so much worse by panic and despair. When the financial system was on the brink of collapse in September, investors shunned all but the safest assets, consumers stopped spending and firms shut down. That plunge into the depths could be succeeded by a virtuous cycle, where the wheels of finance turn again, cheerier consumers open their wallets and ambitious firms turn from hoarding cash to pursuing profits.

But, welcome as it is, optimism contains two traps, one obvious, the other more subtle. The obvious trap is that confidence proves misplaced—that the glimmers of hope are misinterpreted as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing. The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency. Optimism is one thing, but hubris that the world economy is returning to normal could hinder recovery and block policies to protect against a further plunge into the depths.....

Spring has arrived and everyone is fed up talking about the greatest depression since the 1930s. So now there are “green shoots” everywhere.

On one day last week, Bloomberg carried 118 articles and research reports from many sources in which the most durable of horticultural metaphors was deployed. They weren’t isolated cases.

“I do indeed see green shoots for the European economy,” Ewald Nowotny, a council member of the European Central Bank, said at a press conference in Vienna last week.

“We’re beginning to see some healthy signs -- the stirrings of what I call green shoots,” Federal Reserve Bank of Dallas President Richard Fisher said last month.

The trouble is, most of them are nonsense. Over the next few months, you are going to hear a whole series of increasingly ridiculous and bogus signals of recovery trumpeted as if they heralded the end of the recession. All will be meaningless.

Here’s a fool’s guide to four types of “green shoots,” all of which can be ignored by anyone trying to work out where the economy is going....

CONFLICTING news this week from California, one of the centres of the housing bust. Just north of Los Angeles, a Texas bank was tearing down a half-built development of luxury houses that had fallen into its hands. With the market for flashy homes dead, the bank reckoned it made more financial sense to destroy them than to complete them.

Farther south, Jeffrey Mezger, boss of KB Home, a well-known LA-based home builder, was calling a bottom to his segment of the housing market. But KB Home’s secret, he said, was to sell custom-built homes that were smaller and cheaper than before, and priced to compete with a flood of cut-rate foreclosure properties. “Homes must change with the times,” he believes.

Whether it is for affordable homes or cheap goods, Americans are peering through the wreckage of the credit crunch and starting to buy again. After falling sharply in the second half of last year, consumer spending rose in the first quarter, and even sales of homes and cars have edged up from deeply depressed levels. Anticipating a rebound, shares of retail companies have soared.

Ben Bernanke, the Federal Reserve chairman, on May 5th characterised the news on consumers as “somewhat better”. That cautious endorsement qualifies as downright ebullient compared with the pervasive gloom of a few months ago.....

Weak demand at a Treasury bond auction touched off worries in the stock market Thursday about the government’s ability to raise funds to fight the recession.

The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.

Federal Reserve officials, who see possible signs of “stabilization” in the U.S. economy, signaled they’re not convinced those improvements will persist.

Policy makers, meeting April 28-29 in Washington, saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks,” minutes of the session released yesterday said.

The report indicates that Fed officials may be ready to build on their plan in March to buy $300 billion of Treasuries should the economy or financial markets deteriorate further. Some policy makers said an increase “might well be warranted at some point to spur a more rapid pace of recovery” from the worst recession in five decades, the minutes showed.....

The U.S. housing market is nowhere near recovery and signs of stabilization are premature, said David Sokol, a top aide to billionaire investor Warren Buffett who oversees the nation’s second-largest real estate brokerage.

Sokol was among money managers who told an investment conference in New York the economy is still deteriorating and they don’t have a lot of confidence in President Barack Obama’s economic policies.

“We’re not seeing the green shoots,” said Sokol, head of MidAmerican Energy Holdings Co., which owns HomeServices of America Inc. “We don’t see improvement.”

MidAmerican is owned by Buffett’s Berkshire Hathaway, and Sokol is considered a possible successor to Buffett as head of Berkshire. Sokol spoke before reports today showed new-home sales posted their second increase in three months during April, and mortgage delinquencies and foreclosures rose to records in the first quarter.....

Here’s a cautionary word for investors and export nations like Germany, Japan and China: This week’s report of the biggest gain in consumer confidence since 2003 is no sign that America’s shoppers are in any shape to start gorging again.

The harsh reality is that the once-mighty U.S. consumer is setting out on a long, debt-reduction marathon that will mute economic recovery in America and among its major trading partners.

No wonder folks like Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian were talking in recent weeks of a “new normal” of 2 percent or less for U.S. economic growth.

The issue with consumers: Their balance sheets are a bloated mess with household debt still unsustainably high at more than 130 percent of income. Getting the ratio down to a more realistic sub-100 percent level -- never mind the 60 percent to 70 percent range seen in the 1960s and 1970s -- involves serious consumption cutbacks. With consumers accounting for about 70 percent of the U.S. economy, this one-time engine of growth may easily become a dead weight.....