US economy showing signs of recovery

The longest U.S. recession of the postwar era is showing further evidence of losing steam.

Encouraging signs appeared on various fronts yesterday, with the number of first-time jobless claims falling sharply and bargain-hungry shoppers boosting April sales for discount retailers. Earlier this week, a report showed the pace of decline in the service sector slowing.

Along with Federal Reserve Chairman Ben Bernanke's relatively optimistic assessment Tuesday, those developments suggest that the economy may finally be stabilizing.

"The bottom is forming," said Joel Naroff, president of Naroff Economic Advisors. "It doesn't say we're out of the woods . . . but I think things are turning."

Analysts stressed that while the panicky period that followed the collapse of Lehman Brothers last fall is over, a recovery is still months away and is likely to be grinding and slow. Unemployment, which trails other indicators, is likely to keep rising after the recession officially ends. Analysts expect the jobless rate to rise from 8.5 percent to 8.9 percent or so when the government releases its April employment report today.

Yesterday, the Labor Department reported that first-time jobless claims dropped to 601,000 last week. But even if they continue to fall, they will likely remain above 500,000 for some time, said Arpitha Bykere, lead analyst for RGE Monitor.

"These are very sharp job losses," she said. "This clearly affects the U.S. consumer, who is already under pressure because of tight credit and falling home prices."

Indeed, other data released yesterday by the Federal Reserve showed many consumers in the grip of a credit crunch. Consumer credit in March fell by more than 5 percent, the biggest drop in nearly 20 years. Analysts attributed much of the decline to tougher lending standards as well as reduced spending.

Trouble accessing credit, mounting job losses and the need to rebuild savings mean consumers need to stretch every dollar they have. And they appear to be doing that by shunning luxury for bargains. Value-conscious shoppers flocked to discount stores such as Wal-Mart and T.J. Maxx last month. Wal-Mart said sales at its stores open at least a year - a key measure of success in retailing known as same-store sales - rose 5 percent during April compared to the same month last year.

Some industry experts cautioned that any improvements in retailers' performance was largely driven by better management of prices and inventory rather than an increase in consumer demand. Luxury department stores continued to suffer double-digit declines, with Nordstrom down 11 percent, Neiman Marcus dropping 23 percent and Saks falling 32 percent.

"All we're really seeing is a continued flight to value," said Craig Johnson, president of Customer Growth Partners, a retail consulting firm.

Despite such warnings, many economists are voicing hope. When he appeared on Capitol Hill earlier this week, Bernanke endorsed the view that the nation's "pace of contraction may be slowing." He also said that consumer demand "may be stabilizing" and that the housing market has "shown some signs of bottoming."

In a telling sign, many lawmakers quizzed Bernanke not about how much the economy would contract, but about how the Fed would wind down lending programs and tame inflation once economic growth resumed.

"Clearly, the massive economic stimulus from the administration and the Federal Reserve have had a very positive real, as well as psychological, effect on the economy," said California State University economist Sung Won Sohn. "The economy seems to be coming out of this recession faster than I expected."