Treasury assistant secretary for economic policy Alan Krueger yesterday said the growing signs of stabilization could be a “false dawn” but it may be that the recession is winding down.

Krueger told a gathering of actuaries that despite worsening unemployment, he sees “the typical pattern seen around the end of recessions. The financial markets have recovered sooner than production and production is stabilizing faster than the job market.”

If the typical pattern continues, he added, “a major challenge going forward will be hiring, as markets continue to stabilize but employers delay hiring in the face of lingering uncertainty.”

In his prepared remarks, Krueger said the signs of improvement are many — in particular, spreads on interbank lending “have returned to a more normal level” and the S&P 500 index is up 40% since March.

He said consumer sentiment has “generally moved higher” and home sales and housing starts have stabilized.

Initial claims for unemployment benefits have seen the four-week average “on a downward trend since peaking in early April, consistent with the moderation of job loss in the second quarter.”

Finally, he said, after two quarters of sharp contractions, forecasters now expect the contraction to have slowed in the second quarter and “the economy to grow in the second half of the year.”

— Market News International

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