Signs recession nears bottom, but layoffs persist
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WASHINGTON — Fresh signs that factories are coming back to life and a bank CEO's encouraging outlook fueled more hopes Thursday that the economy may soon emerge from the cellar, briefly lifting the Dow Jones industrials over 8,000 for the first time in two months.
The job market, among the last to turn around in an economic recovery, remains weak, though. New claims for unemployment last week were worse than forecast, and Friday's reading on how many jobs the nation lost in March is widely expected to be grim.
At the G-20 meeting of world powers in London, President Barack Obama said international agreements, including a plan to commit $1.1 trillion to fight the downturn, were a "turning point in our pursuit of global economic recovery."
The Commerce Department said orders for manufactured goods rose 1.8 percent in February, reversing six straight monthly declines and easily beating estimates of another drop.
"There is now some solid evidence that the period of economic free-fall is now behind us, that the next step will be a slower rate of decline," said Nigel Gault, chief U.S. economist for consulting firm IHS Global Insight.
Gault predicted in an e-mail that the economy will bottom out in the second half of the year, cautioning that he did not believe the economy was yet ready to grow again.
Economists expect Friday's jobs report to show U.S. employers cut 654,000 jobs in March, with the unemployment rate rising to 8.5 percent from 8.1 percent, according to a survey by Thomson Reuters. Some economists estimate as many as 750,000 jobs lost for March.
Gault expects the unemployment rate eventually to rise to 10 percent before reversing.
Still, recent economic reports have indisputably been more positive. Earlier this week, pending home sales and construction spending both came in better than expected, and there have also been signs shoppers are loosening the death grip on their wallets.
"Some of the recent economic indicators have been more encouraging than they were in the winter, when every indicator pointed in the same direction: straight down," said Stuart Hoffman, chief economist at PNC Financial Services Group.
But layoffs continue to pile up. Last week alone, the Labor Department said, initial claims for unemployment insurance rose to a seasonally adjusted 669,000, the highest in a generation and up from the previous week.
And unemployed workers are having difficulty finding new jobs. The tally of laid-off workers claiming benefits for more than a week rose 161,000 to 5.73 million, setting a record for the 10th straight week.
While initial jobless claims reflect recent layoffs, the monthly jobs report takes into account new hires and calculates a net change.
Traditionally, the job market doesn't pick up until well after a recovery starts. The stock market, on the other hand, generally bottoms out before the economy does, and stocks have been on a steady march higher for three weeks.
The Dow Jones industrial average spent most of the trading day over 8,000, its first time in that territory since early February, then dipped to close at 7,978, a gain of 216 points, or almost 3 percent.
In downturns over the past 60 years, the Standard & Poor's 500 index has hit bottom an average of four months before a recession ended and about nine months before unemployment hit its peak.
Financial stocks led the rally on Wall Street after the board that sets U.S. accounting standards gave banks and other companies more leeway in how they value assets and report losses.
Bank of America CEO Ken Lewis also bolstered the financial markets when he told CNBC that the recession is "getting close to the bottom."
At the G-20, world leaders pledged $1.1 trillion in loans and guarantees to struggling countries and agreed to crack down on tax havens and hedge funds. But they remained divided on how to attack the global recession. The United States and Britain want more stimulus measures, while European politicians want more regulation.
The European Central Bank also agreed to cut a key interest rate to a record low of 1.25 percent. In the United States, the key Federal Reserve interest rate has been at a record low for more than three months.
Employers are eliminating jobs and taking other cost-cutting measures to deal with sharp reductions in consumer and business spending. The current recession, now in its 17th month, is the longest since World War II.
Just this week, 3M Co., the maker of Scotch tape, Post-It Notes and other products, said it will cut 1,200 jobs, or 1.5 percent of its work force, because of the global economic slump. That includes hundreds in 3M's home state of Minnesota.
Companies reduced their payrolls by 651,000 jobs in February, a record third straight month of job losses above 600,000. As a proportion of the work force, the number of people on the jobless rolls is the highest since May 1983.
If job losses in the U.S. continue to mount, it could derail the "little flicker of light we've seen in the economic data," said Carl Riccadonna, senior U.S. economist at Deutsche Bank. That could mean a pullback in consumer spending and more late payments on credit cards, auto loans and other debt.
The Obama administration's $787 billion stimulus package, approved by Congress in February, is trying to counter the recession by providing money for public works projects, extending unemployment benefits and helping states avoid budget cuts.
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AP Business Writer Jane Wardell in London and Tim Paradis in New York contributed to this report.
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CHRISTOPHER S. RUGABER 04/ 2/09 06:52 PM ET Associated Press