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Five signs to measure economic recovery in 2010

Economic recovery in 2010 is likely to fall short on job growth. But higher jobless figures might not be a bad thing – if it signals people are looking for jobs again.

By Ron SchererStaff writer / December 29, 2009

Looking for work: Lenore Price (r.) met Rose Paschoaletto, who works for Mary Kay Inc., at a Philadelphia job fair in December. The jobless rate has fallen, but figures don't include those who have stopped looking for work.

Matt Rourke/AP

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New York

Economic recovery is in the air as America emerges from the longest – and worst – recession since World War II.

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So what’s next for the US economy in 2010?

Perhaps most important, new jobs may be created. Also, home prices may inch up, and many Americans may feel a little better about the state of their pocketbook.

But unlike in past recoveries, the economy is not expected to snap back and bring smiles to everyone on Main Street. Instead, the unemployment rate is expected to stay uncomfortably high, businesses may remain timid about expanding, and some Americans are going to grumble that the recovery has not included them.

“It’s going to be a slog,” says Mark Zandi, chief economist at Moody’s Economy.com. “What we have been through is an abyss.”

Because the downturn has been so steep and so long, some are concerned that the recovery might falter, turning into the dreaded “double dip” recession. Under that scenario, the fragile economy runs out of steam as the fiscal stimulus measures end and consumers remain wary of spending much.

According to most economists, however, America’s gross domestic product could grow about 3 percent next year. In a normal year, that would be good. But given the shocks the economy has experienced, will it be enough to help reduce unemployment and ease other economic difficulties?

As the new year gets under way, here are five signs to watch for that would show the recovery is staying put:

1. The economy starts to produce jobs – and unemployment rises

By spring, corporations will begin adding jobs instead of reducing their payrolls, some economists say. But job growth will be agonizingly slow.

Joel Naroff of Naroff Economic Advisors in Holland, Pa., does not expect the economy to add 100,000 jobs a month until sometime after June. Although more jobs may be good news, it may mean that the unemployment rate rises – peaking between 10.2 and 10.5 percent, he estimates. That’s because people who had given up looking for a job will start searching again. (The unemployment rate includes only those people who are actively looking for jobs.)

“Strange as it may sound, it’s a good sign for the economy to have the unemployment rate rising if it means people are confident enough to look for work again,” Mr. Naroff says. “It’s one of the weirder things at this point in the cycle.”

2. Value of homes starts to rise again

Housing is the most affordable it has been in 40 years because of the decline in prices and low mortgage rates, says Richard DeKaser of Woodley Park Research in Washington. As home prices stabilize, lenders will become more confident, says Mr. DeKaser, who is an expert on home prices. “The stringency of credit will diminish as lenders become more confident they are not at risk of losing their equity,” he says.

As a result, home prices will grow by 3.5 percent next year, he says.

It won’t hurt that Congress has extended and expanded the $8,000 tax credit for home buyers. The credit now includes existing property owners and applies to homes purchased by April 30 and closed on by June 30.

But in some markets, forced home sales will put downward pressure on prices. Foreclosures may worsen in 2010 because of the rising unemployment rate and an enormous backlog of delinquent loans, according to a November forecast by the Mortgage Bankers Association.

3. Consumers become more confident and even make some purchases on a whim

These days, consumers use credit cards less and instead put money under the mattress. Economists who watch spending patterns are hopeful that people will open their wallets a little more in 2010. That would help the economy.

“There is a changed attitude toward debt and spending,” says Dennis Jacobe, chief economist for the Gallup organization in Washington. “Consumers need to feel more secure financially.”

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