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Data Hints at Slowing of Decline

In a recession as bad as this one, here is what passes for optimism: Some economists say the wrenching pace of the downturn may be slowing.

No, the economy has not stopped falling, they caution. In fact, home prices and employment levels are probably still nowhere near a bottom. But recently, a handful of lesser-known indexes and indicators measuring things like overseas shipping rates and manufacturing outlooks have begun to paint a picture that, while bad, is not quite as bleak as a few months ago.

“It’s too early to get excited, but I think there are a couple of green shoots that say we’re not going down as heavily in the first quarter as we were in the fourth quarter,” said Bruce Kasman, chief economist at JPMorgan Chase.

The deepening recession has made fools of experts and officials who have tried to call a bottom, only to see stock markets skid lower and the downturn gain speed. Everyone from economists to President Obama warns the economy is bound to deteriorate further as businesses cut jobs and the government struggles to prop up banking.

The downturn has hobbled countries around the world, underscored Monday when Japan said its economy shrank at an annual pace of 12.7 percent from October through December.

Still, several economists point to signs of hope — or slightly less despair. “You go from a free fall to a steady decline,” said Michael T. Darda, chief economist at MKM Partners. “Is that good? No, it’s not good, but at least you’re kind of falling at a slower pace, and that’s the first step to some of these indicators starting to flatten out.”

Two gauges of retailing and manufacturing activity measured by the Institute for Supply Management crept up a bit in January. Manufacturing shrank at a slower rate in January from December, and new orders rose slightly, according to the group.

“They’re still signaling negative growth, but just not as negative as they were a few months ago,” Mr. Kasman said.

Last week, the Commerce Department reported retail sales crept up 1 percent in January as stores slashed prices. It was a small rise after six straight months of declines, and economists cautioned that sales were likely to slip again as consumers curtail spending.

Sales of existing homes jumped an unexpected 6.5 percent in December, the National Association of Realtors reported last month, as buyers took advantage of falling mortgage rates.

Some negatives looked a little less negative. Consumer credit slid 3.1 percent in December, according to the Federal Reserve, a sign Americans were shunning their charge cards, but the drop was slightly less than November’s 5.1 percent slide.

And although the United States imported and exported 5.7 percent less in goods and services in December, the drop in trade volumes was a shade less breathtaking than November’s 9.4 percent.

Some have also seized on a recent upturn in the Baltic Dry Index, which measures the cost of shipping raw goods like copper, steel and iron. The index cratered last fall as global growth halted, and analysts smelled whiffs of renewed demand as the index more than doubled from its lows.

“It really suggests there’s some sort of supply-and-demand bounce that’s tightening up in commodities,” said James Paulsen, chief investment strategist at Wells Capital Management. “It could fade again, but it’s an encouraging sign.”

Credit markets are still fragile, but analysts say they have stepped back from the brink since October and November, when banks essentially stopped lending to each other and the financial system seemed on the verge of imploding.

Businesses with highly rated debt can again borrow on the bond market, and even companies with shakier ratings find lenders. The companies still have to pay high interest rates, but the premium over government debt has narrowed in recent weeks.

The three-month London interbank offered rate, which measures how much banks charge each other to borrow, has settled near 1.2 percent, down from 4.5 percent at the height of the crisis.

“There are some cracks that are beginning to appear that are allowing some sunlight to come in,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “But whether this foreshadows a turning point in the economy, that’s something no one knows.”

After all, an economy that tumbles at a slower rate is still tumbling, and the distinction may mean little to a laid-off factory worker or families losing their houses to foreclosure.

While most economists still expect an upturn in the second half of the year, many are cutting back their outlook about how quickly that recovery might take hold. They worry that even a $787 billion government stimulus package may not be enough.

The government reported that 598,000 jobs were lost in January, the most for that month in two decades, and economists expect the unemployment rate to rise to 9 or 10 percent from January’s 7.6 percent. Because employment numbers typically lag the broader economy, millions of Americans may still be losing their jobs even after the recession bottoms out.

In a survey in February of 50 forecasters by Blue Chip Economic Indicators, most still expected the economy to turn around in the second half of 2009, but their expectations for growth were dwindling. They expected the economy to shrink 1.9 percent this year, and said it would grow an anemic 2.1 percent in 2010.