Peering up from depths of the recession

By Emily Kaiser

WASHINGTON (Reuters) - The nice thing about a deep recession is that it doesn't take much of a rebound to make the official data look healthy even if the economy is not.

Recent readings across many of the world's biggest economies, including the United States, China, Japan, Britain and Canada, suggest the global recession is petering out. What is missing is a catalyst for a sturdy, sustainable recovery.

Figures due on Friday are likely to show that the U.S. economy contracted for a fourth consecutive quarter, the first time that has happened in records dating to 1947.

But it will probably be the last negative quarter of this recession. Indeed, the second half is shaping up to be stronger than many economists had thought just a few weeks ago.

"We're starting so low, you can get some big numbers for a quarter, maybe even two quarters of good growth but then it all falls apart," said Joel Naroff, head of Naroff Economic Advisors in Holland, Pennsylvania.

Naroff was one of only three economists in a Reuters poll of 67 who thought second-quarter U.S. gross domestic product would be positive, although he acknowledged that his timing of the turn may be a tad early. The consensus forecast is for GDP to decline at an annual rate of 1.5 percent, a vast improvement from the first quarter's 5.5 percent drop.

The reason for Naroff's optimism is largely a matter of mathematics. Home building and auto manufacturing have fallen so far, so fast that eventually the pace of decline must slow. That is what began to happen in the second quarter.

The trend will probably pick up steam in the coming months -- not because demand is bouncing back strongly but simply because stockpiles are depleted and need to be replenished.

"If you're selling 10 million autos (at an annual rate) and it goes to 11.5 million, that's a 15 percent increase in durable goods," Naroff said.

In the boom years before the financial crisis struck in 2007, auto sales were running at closer to a 17 million annual rate, so an 11.5 million pace is still "something worse than atrocious," he said. As far as GDP calculations go, it's an improvement and therefore a positive.

ELEMENT OF SURPRISE

Forecasting Friday's GDP number is unusually tricky because this installment comes with a once-every-five-years revision of data going all the way back to the Great Depression era.

Barclays Capital economist Michelle Meyer is looking for a few tweaks to the U.S. figures. In particular, she thinks the rate of household saving will be revised higher. It has been climbing as Americans try to rebuild trillions of dollars in wealth lost in the cratering of the housing and stock markets.

"This could mean that much of the saving rate adjustment has already occurred, providing less of a drag to consumer spending in the future," she said.

That would add one more modest positive to prospects for the second half. Add in a pick-up in housing and auto manufacturing from dismally low levels and a flood of government stimulus spending and it creates at least the potential for above-average growth in the next two quarters.