US Recession to end at the end of this summer

The American economy will begin growing again in the third quarter, but the rebound will be meek as a battered housing sector and ailing banks stem any progress in other areas, according to a Reuters poll.

U.S. gross domestic product will shrink an annualized 2 percent in the second quarter, officially making this recession the longest since World War Two. That is deeper than the 1.8 percent predicted in the Reuters poll last month.

GDP will then inch up 0.4 percent in the third quarter, before picking up to 1.6 percent in the fourth in consensus results that are barely changed from a similar sample of economists in last month's poll.

This rather lackluster performance will allow the Federal Reserve to leave benchmark interest rates at the current rock-bottom range of zero to 0.25 percent well into next year even as long-term bond yields have risen rapidly.

"Current policy rates look set to remain appropriate for some time to come," said Bruce Kasman, chief economist at JP Morgan.

A separate question put to economists showed that Fed Chairman Ben Bernanke gets a high grade for his handling of the worst financial crisis and downturn since the Great Depression, earning 8 out of a possible 10 marks, Reuters reports.

Encouraging economic signs, or so-called green shoots, include steadying consumer spending in the first half of 2009.

"The improvement in financial market conditions is broad-based and includes narrowing credit spreads, rising equity prices and increased issuance of corporate bonds and securitized debt," the ABA said.

The group forecast that inflation-adjusted GDP will rebound in the third quarter after three straight quarterly declines, reaching a 3% growth pace by the second half of 2010. It also sees a bottom in the decimated housing market.

"Lower prices and low mortgage rates have greatly improved the affordability of homes," Kasman said. "A recovery in the housing sector will be an important contributor to economic growth."

Still, the bankers' association said that credit conditions "remain tight" and that the economy will continue to lose jobs, with unemployment peaking at 10%. Meanwhile, growth will be hampered by budget deficits well above $1 trillion this year and in 2010 as the government ramps up spending to combat the financial crisis.

Blue Chip Economic Indicators recently said the consensus has grown more optimistic that the economy will emerge from the recession in the second half of this year.

Still, not everyone is hopeful the U.S. economy is ready to turn the corner, MarketWatch reports.

The Obama administration's $787 billion stimulus package also is contributing to the recovery, Kasman said.

The committee also expects the housing market to bottom this year and contribute to economic growth for the first time in several years. Home prices will be "modestly higher" next year, the committee said.

Signs of recovery in the housing market appeared Tuesday as construction of new homes and apartments jumped 17.2 percent to an annual pace of 532,000 units. That was above analysts' expectations of 500,000 units.

Still, the huge increase in the federal government's budget deficit, which is expected to reach nearly $1.85 trillion this year, could lead to higher interest rates after 2010, the AP reports.

"There are clearly challenges and longer term problems that remain even as the economy recovers," Kasman said.

But inflation should remain at bay, as consumer prices, excluding food and energy, drop about 1 percent by the end of this year, he said. Analysts polled by Thomson Reuters expect the Labor Department will report Wednesday that core inflation rose 1.8 percent in May from the previous year.

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Author`s name Alex Naumov