The U.S. economy may have pulled out of its tailspin but it is still losing altitude.
Global stock markets have turned euphoric over the idea that the worst may be over for world’s largest economy, with Wall Street rallying more than 20 percent off lows reached earlier this month.
Fueling this newfound optimism, unexpectedly robust economic reports this week showed signs of recovery in the beleaguered manufacturing and housing sectors.
However, economists warn it is too soon to say the United States is recovering from what will probably become the longest and deepest decline since the Great Depression.
"I think it’s reasonable to say that we perhaps are pulling out of the tailspin, that we’re moving out of the period of freefall," said Nigel Gault, director of U.S. economic research at IHS Global Insight in Lexington, Massachusetts.
"That’s not the same thing as recovery being just around the corner."
Atlanta Federal Reserve President Dennis Lockhart echoed this sentiment on Thursday, saying one month of improved data did not constitute an economic recovery.
"Most of the data that we follow appears to signal a continuing recession, at least a few more months," Lockhart said.
Indeed, data confirmed the U.S. economy shrank in the fourth quarter at its fastest pace since 1982, with a chain reaction of job losses and plummeting demand for imported goods from around the globe.
Leaders of the world’s major economies will meet at a G20 summit in London on April 2 to try to come to grips with the world financial and economic crisis.
The most painful vestige of recession, the sharp rise in unemployment, will not begin to improve until long after the rest of the economy stabilizes.
The scale of job destruction will be evident when the U.S. government releases monthly employment data on Friday.
The nonfarm payrolls report, usually the biggest event on the U.S. economic calendar, is expected to show a massive 654,000 jobs were lost in March, according to the median in a Reuters poll of economists.
Economists have already ratcheted higher their forecasts for job losses. The only silver lining is that the projected total would be little worse than the 651,000 jobs lost in February.
The unemployment rate is expected to have jumped to 8.5 percent in March. This would be the highest since 1983, when the economy was still shaking off the debilitating effects of stagflation, marked by low growth and sharp price rises.
"The employment situation is still doing anything but improving," said Brian Fabbri, managing director of economic research at BNP Paribas.
Fabbri said he does not expect the economy to grow for another 12 months, even though the slump has shown some signs of moderating.
"We might have gone through the worst of the decline, but we’re still in a decline environment," Fabbri added.
Gault, at IHS Global Insight, forecast 750,000 job losses for March — which would be the worse month since 1949.
He expects the unemployment rate to continue rising this year before peaking at more than 10 percent in the first half of next year, perhaps well after the economy starts to grow.
"The next employment report is probably going to be the worst one yet," Gault said of the March payrolls report. "Unemployment is the very last thing that turns."
Other U.S. economic indicators during the week are unlikely to depart much from the gloom of the jobs report.
Home price data Tuesday is expected to show more weakness, though pending home sales data on Wednesday may improve slightly.
Reports from the Institute for Supply Management Wednesday and Friday are likely to show the manufacturing and service sectors contracted sharply again in March.
"Certainly nonfarm payrolls is going to be the key number," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co.
"We have all the ISM numbers. That will (also) be important. We have the potential to have a choppy week."
The United States will not be able to look abroad for much help, at least for now.
Monday’s report on Japanese industrial output is forecast to show a 10.0 percent decline. Meanwhile, the country has slipped to the brink of deflation.
Euro zone consumer and industrial sentiment readings on Monday are expected to remain negative. Similarly, manufacturing and service sector gauges are likely to remain weak on Wednesday and Friday.
The European Central Bank’s meeting Thursday may only highlight the difficulties facing the euro zone economy. Economists expect an interest rate cut, but also a discussion of less conventional methods of easing monetary conditions.
Ultimately, though, analysts figure the global economy is still trailing the United States on its slog through the quagmire, so new measures may be of little immediate help.
Said Fabbri at BNP Paribas: "The rest of the world is falling into the same hole we did, but later."
