US GDP contracts sharply in Q1 but worst may be over

The US economy contracted at a 6.1 percent annual pace in the first quarter, worse than economists expected.

However, Calculated Risk thinks that the news is actually not bad because "the decline in Q1 was weighted towards lagging sectors". The slump in residential investment, a leading sector, is already slowing and this suggests that the "worst of the GDP declines is probably over".

Calculated Risk considers consumption a leading indicator and in this regard, James Hamilton noted that consumption rebounded in the first quarter, which could be key to a recovery.

On Tuesday, the Conference Board had reported that its consumer confidence index climbed to 39.2 in April from 26.9 in March.

A survey of economists by the WSJ's Real Time Economics blog found some "glimmers of hope" in GDP, again driven mainly by signs of greater consumer spending.

The Federal Reserve is no exception. In its statement released at the end of its meeting on Wednesday, the FOMC noted the improvements in the economy. From Bloomberg:

The Federal Reserve refrained from increasing purchases of Treasuries and mortgage securities, signaling the worst of the recession may be over.

“The economy has continued to contract, though the pace of contraction appears to be somewhat slower,” the Fed’s Open Market Committee said in a statement after a two-day meeting in Washington. “Household spending has shown signs of stabilizing, but remains constrained by ongoing job losses, lower housing wealth and tight credit.”

The FOMC left the target fed funds rate unchanged at between zero and 0.25 percent.

Meanwhile, Europe's economy has also begun to show signs of improvement. From Bloomberg:

European confidence in the economic outlook increased for the first time in 11 months in April as inflation slowed and governments boosted spending to combat the recession.

An index of executive and consumer sentiment in the 16 nations that use the euro rose to 67.2, the first increase since May 2008, the European Commission in Brussels said today. The April reading was above the 65.6 median estimate of 26 economists in a Bloomberg survey, and up from 64.7 in March. Euro-area capacity utilization for the quarter fell to 70.5 percent, the lowest since 1990, the commission said.

Bear market rallies

The rally in the stock market from early March has been impressive but it is hard to conclude from it alone that we have seen the bottom in the market.

From its intraday low at the trough of 6,516.86 on 9 March to its intraday high at the peak of 8,190.66 on 17 April, the Dow Jones Industrial Average gained 25.68 percent. Such a gain is usually enough to qualify the move as a bull market.

However, many analysts consider it just a bear market rally. Indeed, such strong rallies are not unprecedented in bear markets.

Yesterday, Barry Ritholtz posted a chart (originally from a post by Brian Shannon of AlphaTrends) that provides a historical perspective of bear market rallies. The chart showed that there were a number of big rallies during the bear market of the Great Depression too, some even bigger than the latest one.

The following table uses numbers from the chart mentioned above.

Large Bear Market Rallies
Low	High	Low-high pt diff	Low-high % diff
195.35	297.25	101.90	52.16
207.74	247.21	39.47	19.00
154.45	196.96	42.51	27.52
119.81	156.74	36.93	30.82
85.51	119.15	33.64	39.34
69.85	89.87	20.02	28.66

The next chart attempts to directly compare graphically the latest bear market with the bear market of the Great Depression. You can see that compared to the fluctuations during the latter, the fluctuations -- including the rallies -- in the current bear market so far have in fact been relatively sedate.

Note that the time scales used in the chart were designed such that both markets are presented over the same number of months. The time scales do not imply that I am suggesting that we are necessarily around half-way through the latest bear market, although that is not implausible either.

If only interest rates could go negative

The Federal Open Market Committee meets on Tuesday and Wednesday. If it could, it'd probably cut interest rates to minus 5 percent. From the FT today:

The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.

No stranger to unconventional monetary policy is Japan, who probably could do with more of it. From AFP/CNA today:

Japan said on Monday it expects the economy to shrink 3.3 per cent over the coming year, its worst slump in at least half a century, as the government presses ahead with a record stimulus package.

Still, for all the bad news, including the outbreak of swine flu, Japanese stocks closed up today. From Bloomberg:

Japanese stocks rose, led by banks and drugmakers, on speculation two local lenders will merge and an outbreak of swine flu will spur sales of antiviral treatments. Indexes pared gains as earnings fell at shipping lines...

The Nikkei 225 Stock Average added 18.35, or 0.2 percent, to close at 8,726.34 in Tokyo, after swaying between gains and losses eight times. The broader Topix index climbed 3.05, or 0.4 percent, to 833.10.

UK economy shrinks 1.9 percent

The UK economy shrank at its sharpest rate in 30 years in the first three months of 2009. Reuters reports:

Official figures on Friday -- the first sign from a major G7 economy of the nature of the downturn at the start of the year -- showed British gross domestic product fell 1.9 percent on the quarter, the biggest fall since the third quarter of 1979.

Still, there are tentative signs of stabilisation.

Looking forward, economists are starting to believe the worst of the recession is over given the most recent evidence from business surveys. There are also some signs that banks are starting to lend more, a crucial factor in any recovery.

And UK retail sales picked up at the end of the first quarter. The BBC reports:

Retail sales volumes in March were 0.3% higher than in February when sales fell by 2%. Sales in March were 1.5% higher than a year ago.

The volume of sales in the first three months of the year was just 0.9% up on the previous three months.

Elsewhere in Europe, German business confidence rebounded in April, the IFO index rising to 83.7 from 82.2 in March.

However, a recovery in the global economy may take a while to come as US economic data released on Friday showed that negative trends persisted. From Bloomberg:

Orders for U.S. durable goods in March fell less than forecast and sales of new houses were higher than projected, signs the economic slump is easing.

Bookings for goods meant to last several years fell 0.8 percent last month, the Commerce Department said today in Washington. The median estimate of economists surveyed by Bloomberg News called for a 1.5 percent drop. New-home sales dipped 0.6 percent to a 356,000 annual pace after Commerce said the February reading was stronger than previously estimated.

Global economy improving but crisis far from over

There were more encouraging reports on the global economy on Thursday.

In the US, first-time claims for jobless benefits rose 27,000 to 640,000 last week but the four-week average fell to 646,750 from 651,000. Sales of previously owned homes fell 3 percent in March, a decline small enough for some analysts to declare that the "plunge is over".

In the euro area, industrial new orders fell a record 34.5 percent in February from a year ago. However, compared to January, it fell a smaller-than-expected 0.6 percent.

In other news that indicate that the recession in the euro area is easing, the preliminary Markit composite eurozone PMI rose to 40.5 in April from 38.3 in March. The services PMI rose to 43.1 in April from 40.9 in March while the manufacturing PMI rose to 43.1 from 33.9.

And on Wednesday, Japan reported that its exports rose 2.2 percent in March, a possible indication that exports may have hit a bottom.

Still, the road to economic recovery will be long. In its latest World Economic Outlook released on Wednesday, the IMF lowered its forecast for global economic growth this year from a growth rate of 0.5 percent to a contraction of 1.3 percent. And on Thursday, IMF managing director Dominique Strauss-Kahn said that the economic crisis remains far from over. From Reuters:

"Despite some red lights and green lights ... our belief is the crisis is far from over," Strauss-Kahn told a press conference on the eve of a regular spring meeting of the International Monetary Fund.

There are "still long months of economic distress in front of us," he said, despite some evidence of economic stability due to the impact of powerful stimulus measures undertaken by authorities. But he reiterated the IMF's forecast that the world economy would recover in the first half of next year.

More central bank rate cuts, German investor confidence improves

Bloomberg reports a rate cut from Canada's central bank on Tuesday.

The Bank of Canada cut its key lending rate to a record low, and said it plans to leave it there for more than a year because inflation will remain below its 2 percent target.

The target rate for overnight loans between commercial banks was reduced to 0.25 percent today, the lowest since the central bank was founded in 1934 and the lowest it can go, the bank said. Policy makers also kept the rate on overnight deposits from commercial banks at 0.25 percent, instead of the usual practice that would have reduced it to zero.

Sweden's central bank also lowered rates.

Sweden’s central bank, the world’s oldest, cut the benchmark interest rate to a record 0.5 percent and said it’s ready to take further steps to revitalize the Nordic region’s largest economy, mired in the worst recession in more than half a century.

The Stockholm-based Riksbank, founded in 1668, lowered the seven-day repo rate by half a percentage point, with one of the six policy makers voting for a three-quarter-point cut, the bank said on its Web site today. Twelve out of 21 economists in a Bloomberg survey forecast the size of the reduction.

India's central bank reduced interest rates for the sixth time in as many months.

The Reserve Bank of India cut the reverse repurchase rate to 3.25 percent from 3.5 percent, according to a statement in Mumbai today. Economic growth may ease to 6 percent in the year that started April 1 from 7.1 percent in the previous 12 months, the central bank said.

The rate cuts come even as confidence about the global economy has improved. For example, Bloomberg reports that German investor confidence rose in April.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to 13 from minus 3.5 in March. That’s the highest since June 2007 and the first positive reading since July 2007...

The improved confidence helped push up central European currencies on Tuesday, but the Wall Street Journal highlights a potential pick-up in the Asian carry trade as well.

An improved outlook for emerging economies and increased stability in nations with high-yielding currencies have investors wading back into carry-trade waters.

The currencies of economies with high interest rates are the most likely beneficiaries, according to Standard Chartered Bank. The Indonesian rupiah, the Indian rupee and the Philippine peso all could rise as a result.

US and Japanese leading indices decline

Fed chairman Ben Bernanke may have seen "green shoots" of recovery but the Conference Board's US leading index indicates that a recovery is still some way off. From Bloomberg:

The index of U.S. leading economic indicators fell more than forecast in March, signaling what may be the longest recession in the postwar era will extend into the second half of the year.

The Conference Board’s gauge, which points to the direction of the economy over the next three to six months, fell 0.3 percent after a 0.2 percent drop in February. The gauge hasn’t risen since June.

The recent rally in stock prices could help boost April's number, although yesterday's market casts doubt whether that rally can be sustained.

The Standard & Poor’s 500 index fell 4.3 percent to close at 832.39. Treasuries climbed, sending benchmark 10-year note yields down to 2.84 percent at 4:14 p.m. in New York from 2.95 percent at the close last week...

A report today from Bank of America, the largest U.S. bank by assets, took some of the shine off the rebound in equities that began in mid March. The Charlotte, North Carolina-based bank said first-quarter profit more than tripled on gains from home refinancing and trading. Still, the stock dropped as rising charge-offs for uncollectible loans overshadowed the earnings.

An earlier report from Japan also left its recovery hopes in doubt. The Economic and Social Research Institute reported that the final number for Japan's leading index in February was 75.0, revised down from 75.2 in a preliminary estimate. In January, the index stood at 76.7.

US and Japanese consumer sentiment improve

Consumer confidence in the US was up in April. Bloomberg reports:

The Reuters/University of Michigan preliminary index of consumer sentiment rose to 61.9, the second straight gain, from 57.3 in March. The index reached a three-decade low of 55.3 in November.

It is not just in the US. Bloomberg reports that consumer sentiment has also improved in Japan.

Japan’s consumer sentiment rose to a five-month high in March, a sign that the recession in the world’s second-largest economy is abating.

The confidence index climbed to 28.9 from 26.7 in February, the Cabinet Office said today in Tokyo. The index has advanced for three months since tumbling to 26.2 in December, the lowest since the government began compiling the figures in 1982.

The improvement may not necessarily signal an imminent recovery though.

The Cabinet Office upgraded its assessment of the index for a second month, saying “consumer sentiment has stopped declining, though it remains in a severe state.”

The gain in the index was more of a reflection that pessimism was moderating rather than optimism taking hold, said Shigeru Sugihara, deputy director-general at the Cabinet Office...

[S]ome economists say the recession will spread as exporters including Toyota Motor Corp. try to minimize losses by cutting pay and firing workers. Bank of Japan Governor Masaaki Shirakawa said today that weaker spending by companies and consumers will worsen the economy even as exports and production start to improve.

Demand for services fell 0.8 percent in February from a month earlier as companies cut production and pay cuts damped consumer spending, the Trade Ministry said today. The unemployment rate advanced to a three-year high of 4.4 percent in February and wages fell the most in five years.

More signs of improvement in economies but IMF sees sluggish recovery

China's economy slowed in the first quarter. AFP/CNA reports:

China announced its slowest economic growth in at least a decade on Thursday, with the worldwide downturn cooling expansion to just 6.1 per cent in the first quarter of the year.

But economists are counting on government stimulus for recovery.

Urban fixed asset investments rose 28.6 per cent in the first quarter, while in March alone the increase was 30.3 per cent year-on-year, the bureau said.

The figure is a measure of government spending on infrastructure, which got a huge boost in November with a four-trillion-yuan (US$580-billion) package aimed at warding off the effects of the global economic crisis.

"It looks like we've already started to gain some forward momentum," said Stephen Green, a China economist with Standard Chartered.

Meanwhile, in the US, there were more signs on Thursday that the economy is stabilising. Bloomberg reports:

Initial jobless claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January, the Labor Department said today in Washington. Builders broke ground on 358,000 single-family homes at an annual rate, unchanged from the prior month...

The Fed Bank of Philadelphia’s general economic index increased to minus 24.4 this month from minus 35 in March as orders dropped at a slower pace, the bank said...

But gloomy numbers are still coming out of Europe. From Bloomberg:

Industrial production...in the euro region fell 18.4 percent from the year- earlier month, the biggest drop since the data series began in 1986, after a revised 16 percent decline in January, the European Union’s statistics office in Luxembourg said today. Economists expected production to fall 18 percent in February, according to the median of 16 estimates in a Bloomberg survey. Inflation slowed in March to 0.6 percent, a record low, the office said in a separate report.

Furthermore, the IMF is not optimistic about the prospects for recovery. Bloomberg reports:

The global economy is in the grip of a “severe” recession with “worrisome parallels” to the Great Depression and a recovery will probably be weak, according to a report by the International Monetary Fund.

“The downturn is likely to be unusually severe, and the recovery is expected to be sluggish,” the Washington-based lender said in a portion of its World Economic Outlook released today in a briefing. “The current downturn is highly synchronized and associated with a deep financial crisis, a rare combination in the postwar period.”

US consumer prices and industrial production fall

Economic weakness means there is little inflationary pressure in the US right now. Bloomberg reports Wednesday's US economic data.

The consumer price index fell 0.4 percent in March from a year before, and 0.1 percent from the previous month, the Labor Department said in Washington. Output at factories, mines and utilities dropped 1.5 percent last month, when the share of industrial capacity in use slid to 69.3 percent, the Fed said.

But other reports show that conditions may already be stabilising.

A Fed survey today also showed that manufacturing in the New York area contracted in April less than forecast, an indication some businesses have adjusted to the economy’s lower level of demand, analysts said. The Fed Bank of New York’s general economic index rose to minus 14.7 from minus 38.2 the prior month, when the so-called Empire State index reached its lowest level since data began in 2001...

The U.S. contraction slowed across several of the Fed’s biggest regions last month, with some industries “stabilizing at a low level,” the central bank said in a separate report today. Retail sales showed a “slight improvement” in some regions, and there was a “scattered pickup” in home buying, the report said.

The National Association of Home Builders/Wells Fargo index of builder confidence rose to 14 from 9 the prior month, the biggest gain since May 2003, figures from Washington-based NAHB showed today. Low lending rates and government efforts may be putting a floor on the housing market’s slump. Still, readings below 50 mean most respondents view conditions as poor.

Global confidence up but US retail sales fall

Confidence in the global economy has risen recently, the Bloomberg Professional Global Confidence Index climbing to 21.2 in April from 5.95 in March. Still, yesterday's data on US retail sales show that it is too soon to call a bottom in the economy, even if the Fed chairman thinks that the worst may be over.

From Bloomberg:

Retail sales in the U.S. unexpectedly fell in March as soaring job losses forced consumers to pull back.

The 1.1 percent decrease followed a 0.3 percent gain in February that was stronger than previously estimated, the Commerce Department said today in Washington. Auto dealers, electronics stores and restaurants led the decline.

Less consumer spending heading into the second quarter means the recession is likely to persist. Still, Federal Reserve Chairman Ben S. Bernanke said today there are signs that the “sharp decline” in the U.S. economy is slowing, indicating a potential “first step” toward recovery...

Another government report showed prices paid to U.S. producers unexpectedly fell in March after two months of gains, indicating the recession is keeping inflation under control.

The 1.2 percent decrease followed a 0.1 percent gain in February, figures from the Labor Department showed today in Washington. Excluding fuel and food, so-called core prices were unchanged. Over the last 12 months, wholesale expenses fell by the most in almost six decades.

BoE holds, markets rally

Central banks are no longer rushing to cut interest rates.

The Bank of England left interest rates unchanged on Thursday. Reuters reports:

The Bank of England left interest rates at a record low of 0.5 percent on Thursday and said it would take two more months to complete its 75 billion pound quantitative easing programme to fight recession.

Earlier on Thursday, South Korea's central bank had also left its key interest rate unchanged at two percent.

An improving economic picture would probably help put a floor on central bank rates, and Thursday's US data did provide a sense of that. From Bloomberg:

The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe.

The gap narrowed to $26 billion, less than anticipated, from a revised $36.2 billion in January, the Commerce Department said...

Imports fell 5.1 percent to $152.7 billion, the lowest since September 2004...

U.S. exports climbed 1.6 percent to $126.8 billion as sales of pharmaceutical supplies, autos and telecommunications equipment improved...

And initial claims for unemployment insurance fell by 20,000 to 654,000 last week.

Of course, the trends in the economic indicators remain mixed on the whole and any brightening in the outlook must be considered tentative. But that's still an improvement over the gloom earlier in the year, and that's enough for global markets to rally, as Bloomberg reports.

Global stocks rallied, led by a record gain in U.S. bank shares, as better-than-estimated earnings at Wells Fargo & Co. and speculation American lenders will pass government stress tests boosted confidence in the financial system...

The S&P 500 added 3.8 percent to a two-month high of 856.56 and capped a fifth straight weekly gain, the longest stretch since the bear market started in October 2007. The Dow Jones Industrial Average rose 246.27, or 3.1 percent, to 8,083.38. Eleven stocks gained for each that fell on the New York Stock Exchange...

Benchmark stock gauges in Germany and Hong Kong added 3 percent as the MSCI World Index of 23 developed nations increased 3.1 percent, the most in a week...

The S&P 500 has rallied 27 percent since reaching the lowest level in a dozen years on March 9...

Treasury 10-year notes fell for the first time in three days as the economy showed signs of stabilizing, diminishing the safety appeal of government debt. The yield on the 10-year note rose seven basis points, or 0.07 percentage point, to 2.93 percent...

Crude rallied 5.8 percent to $52.24 a barrel as copper and aluminum also gained. Gold fell in New York, capping a third straight weekly loss, dropping 0.3 percent to $883.30 an ounce.

Japanese machinery orders rise, German manufacturing orders fall

Japanese exports fell 50.4 percent in February, but there are already signs that things may be looking less bleak for the economy. From Bloomberg today:

Japanese machinery orders unexpectedly rose for the first time in five months in February, adding to signs that the recession may be easing.

Bookings, an indicator of capital investment in the next three to six months, climbed 1.4 percent from January, the Cabinet Office said today in Tokyo. The median estimate of 28 economists surveyed by Bloomberg was for a 6.9 percent drop.

Yesterday, another report from the Cabinet Office had also shown some improvement in the economic outlook. Again from Bloomberg:

Confidence among Japanese merchants rose to an eight-month high in March, adding to signs that a slump in the world’s second-largest economy is abating.

The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, climbed to 28.4 last month from 19.4 in February, the second-biggest jump on record, the Cabinet Office said today in Tokyo...

Merchants said they expect conditions to keep improving, with the outlook index of sentiment rising to 35.8...

Factories in Germany, however, saw a worse-than-expected fall in orders in February. From Bloomberg yesterday:

Orders, adjusted for seasonal swings and inflation, fell 3.5 percent from January, the sixth consecutive drop, the Economy Ministry in Berlin said today. Economists expected a 2.1 percent decline, the median of 30 forecasts in a Bloomberg survey showed. From a year earlier, orders plunged a record 38.2 percent.

German exports have also been falling.

German exports dropped 0.7 percent in February, the fifth decline in as many months, the Federal Statistics Office said today. Imports fell 4.2 percent in February from the previous month.

Eurozone and UK economies contract

The euro zone shrank more than previously estimated in the last quarter of 2008. Reuters reports:

Gross domestic product in the 15 countries that were using the euro in the fourth quarter contracted 1.6 percent against the previous three months, rather than the previously reported 1.5 percent, EU statistics office Eurostat said...

Meanwhile, estimates are already coming out for UK first quarter GDP. Reuters reports:

The economy probably shrank by 1.5 percent in the first three months of this year after a 1.6 percent decline in the last three months of 2008, leading researchers said on Wednesday.

The National Institute of Economic and Social Research, an academic body that has a good track record of forecasting economic growth, said the economic slowdown so far mirrored the one which started in 1979.

In other UK news, industrial production fell by 1.0 percent in February while the Nationwide Building Society consumer confidence index fell to 41 in March from 43 in February.

RBA cuts rate, BoJ holds

The Reserve Bank of Australia cut its interest rate today. Bloomberg reports:

Australia’s central bank cut its benchmark interest rate to a 49-year low after policy makers signaled the economy faces its first recession since 1991.

Glenn Stevens lowered the overnight cash rate target by a quarter-point to 3 percent today, as forecast by four of 23 economists surveyed by Bloomberg News. Five expected a half- point reduction and 14 tipped no change.

But the Bank of Japan left interest rates unchanged and is broadening the range of collateral it accepts instead. Again from Bloomberg:

Governor Masaaki Shirakawa and his policy board today decided to accept municipal and central government bonds that are sold directly to investors to ease credit, the central bank said in a statement today in Tokyo. The board held the overnight lending rate at 0.1 percent by a unanimous vote.

US employment, services contract

Friday brought another weak report on US employment. Bloomberg reports:

The economy lost 663,000 jobs in March, bringing losses since the slump began to about 5.1 million, the worst in the postwar era, Labor Department figures showed in Washington. The 8.5 percent jobless rate was consistent with the forecasts of 79 economists surveyed by Bloomberg News...

Revisions subtracted 86,000 workers from January payrolls while February’s drop of 651,000 was not revised.

It doesn't help that US service sector activity contracted again in March.

The ISM’s services index, which covers almost 90 percent of the economy, fell to 40.8, the lowest level of the year, from 41.6 the prior month, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.

But elsewhere, the eurozone services index rose from 39.2 in February to 40.9 in March, exceeding the preliminary estimate of 40.1, while the UK services PMI rose to 45.5 in March from 43.2.

ECB cuts rates as data show economic contraction moderating

The ECB cut rates on Thursday, but not by as much as expected. Bloomberg reports:

The Frankfurt-based ECB lowered its benchmark rate by a quarter-point to 1.25 percent, less than the half-point reduction expected by 49 of 55 economists in a Bloomberg survey. President Jean-Claude Trichet indicated the bank may lower the rate further next month, when he said it will also decide on any new “non-standard measures.”

But perhaps the need for monetary stimulus in the global economy is starting to ease.

In the UK, construction activity shrank at a slower rate in March. Reuters reports:

The Chartered Institute of Purchasing and Supply/Markit construction PMI index nudged up to 30.9 in March, compared to February's series low of 27.8 in February.

And UK house prices actually rose, according to another Reuters report.

The Nationwide Building Society said house prices rose 0.9 percent on the month in March after a 1.9 percent drop in February, and a separate survey by the Bank of England showed lenders were becoming more willing to extend credit.

And although US employment is still deteriorating, other indicators are showing improvement. From Bloomberg:

Initial jobless claims swelled by 12,000 to 669,000 in the week ended March 28, the most since 1982, the Labor Department said today in Washington. A Commerce Department report showed orders to factories improved in February for the first time in seven months.

Nevertheless, G20 leaders remain concerned enough to agree to more action to mend the global economy. Reuters reports:

World leaders clinched a $1.1 trillion deal on Thursday to combat the worst economic crisis since the Great Depression and said financial rules would be tightened to stop it happening again.

Global manufacturing index up in March

Wednesday brought renewed hope that the US recession may be abating. From Bloomberg:

The Institute for Supply Management’s factory index climbed to 36.3 in March, a third consecutive increase that brought it closer to the breakeven point of 50. The number of contracts to buy existing homes in February rose 2.1 percent, according to the National Association of Realtors.

The employment situation continues to deteriorate though.

Other reports today showed the job market continued to deteriorate last month. Companies in the U.S. cut an estimated 742,000 workers in March, the most since records began in 2001, according to ADP Employer Services. Challenger, Gray & Christmas Inc., a Chicago-based placement firm, said job-cut announcements almost tripled last month from a year earlier, led by planned cutbacks at government agencies, pharmaceutical and aerospace and defense firms.

Certainly, the employment situation is deteriorating in Europe. Bloomberg reports:

The jobless rate in the euro zone rose to 8.5 percent from a revised 8.3 percent in January, the European Union’s statistics office in Luxembourg said today. The February reading is the highest since May 2006 and exceeded the 8.3 percent rate economists forecast, according to the median of 23 estimates in a Bloomberg News survey. The January figure was revised higher from 8.2 percent reported on Feb. 27.

But as in the US, the contraction in manufacturing in the euro area slowed in March. Again from Bloomberg:

Europe’s manufacturing industry contracted more than estimated in March as a deepening economic slump prompted companies to cut output and costs.

A gauge of manufacturing activity rose to 33.9 from 33.5 in February. The March reading is below an initial estimate of 34 released on March 24. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates contraction.

Manufacturing also improved in the UK, and at an even sharper rate. Reuters reports:

The CIPS/MARKIT manufacturing purchasing managers' index improved to 39.1 in March from 34.9 in February. Analysts had expected a more modest improvement to 35.0.

However, manufacturing failed to maintain its improving trend in China. Bloomberg reports:

The CLSA China Purchasing Managers’ Index dropped to a seasonally adjusted 44.8 from 45.1 in February, CLSA Asia- Pacific Markets said today in an e-mailed statement. A reading below 50 indicates a contraction.

In Japan, the Nomura/JMMA Japan manufacturing PMI had been reported on Tuesday to have risen to 33.8 in March from 31.6 in February. However, Wednesday brought more negative news for the sector, courtesy of AFP/CNA.

Business confidence among major Japanese manufacturers hit a record low in the three months to March, as the global economic crisis deepened, the central bank said Wednesday.

Confidence tumbled to minus 58 in March from minus 24 the previous quarter, plunging below its previous record low of minus 57 registered in 1975, according to the Bank of Japan's Tankan survey of more than 10,000 firms.

Still, the global manufacturing PMI rose to 37.2 in March from 35.8 in February, a hopeful sign perhaps for the global economy.

Gloom persists in Japan and the US

Japan's economic gloom isn't lifting yet. AFP/CNA reports:

Japanese unemployment rose to 4.4 per cent in February, up from 4.1 per cent the previous month, as firms cut jobs and close factories to cope with the deepening recession, the government said Tuesday...

Separately, Japanese household spending tumbled 3.5 per cent in February from a year earlier as the public watched their expenses to cope with the deteriorating economy, according to official figures Tuesday.

Neither is the gloom in the US. From Bloomberg:

Confidence among U.S. consumers stayed near a record low and a survey of purchasing managers showed business deteriorated further in March, indicating the economy remains deep in a recession.

The Conference Board’s confidence index rose to 26 this month from 25.3, the lowest reading since data began in 1967, in February. The Institute for Supply Management-Chicago Inc. said its business barometer decreased more than forecast to 31.4; readings below 50 signify a contraction...

The S&P/Case-Shiller index showed today that home prices in 20 U.S. cities fell a record 19 percent in January from a year earlier, as demand plummeted and foreclosures rose. The decrease in the gauge, which has fallen every month since January 2007, was more than forecast and compares with an 18.6 percent drop in December.