A funny thing happened to the economy on its way to recession: It took a detour.
That, at least, is the view of a growing number of economists — including some who not long ago were saying a recession was all but inevitable. They note that stock and credit markets have steadily improved since the Federal Reserve intervened to keep Bear Stearns Cos. from bankruptcy in early March, while a series of economic reports have been stronger than expected.
Economists also cite swift policy responses, including a sharp reduction in interest rates by the Fed, and the distribution of fiscal-stimulus checks to millions of Americans as factors possibly easing the downturn.
"A couple of months ago it seemed like we were on the abyss," said Jay Bryson, global economist with Wachovia Corp. "Things have changed. … The numbers we've seen recently haven't been as bad as we were led to believe just a few months ago." Wachovia now puts the odds of recession at 45 percent, down from 90 percent in April.
Indeed, plenty of economic warning signs remain, as reflected in plunging consumer confidence data and polls reflecting deep unease among voters. Rising prices for food and other commodities are prompting Americans to trim some spending and stoking concerns about inflation.
Job losses, meanwhile, have been less severe than they usually are in recessions. And many economists think the government's earliest estimate of first-quarter GDP growth — 0.6 percent — will be revised upward. After reviewing the retail-sales data, economists at Global Insight, a Waltham, Mass., forecasting firm, predicted the government would increase its assessment of GDP growth in the first quarter to a 1 percent annual rate.
In February, Global Insight joined Goldman Sachs, Morgan Stanley, UBS and Merrill Lynch in declaring the nation to be in recession.
Now, Global Insight's Brian Bethune says that while the firm is still forecasting a recession, "it's conceivable we could avoid it," thanks to "the massive policy response we've seen" since he and others began warning about the risks facing the U.S. economy.
A common definition of a recession is at least two consecutive quarters of negative GDP. But the National Bureau of Economic Research — the nonprofit group that is the official arbiter of when recessions begin and end — defines a recession as a period of significant decline in economic activity across GDP, income, employment and retail sales that lasts more than a few months.
John Lonski, Moody's chief economist, said recent labor market data and signs the credit crunch is easing on Wall Street have made him less gloomy than he was a few months ago.
In the latest WSJ.com survey of economists, conducted in May, he said the likelihood of a recession was 60 percent, down from the 90 percent he predicted in April.
On average, the 55 economists in the May survey said the likelihood of a recession was 62.7 percent, down from 70 percent.