PREDICTING THE FUTURE OF ECONOMY

Traders are waiting for a sudden spasm of selling known as capitulation. That wrings fearful investors out of the market, and as they rush out, bargain-hunters rush in. Capitulation would trigger a huge plunge in prices and frenzied trading volume.

Many market experts say the bottom of the stock market could come in the second or third quarter of this year. And the recovery, whenever it comes, could be as breathtaking as the fall: Since 1932, the S&P 500 has gained an average of 46 percent in the year after stocks have hit a bottom.



The recession is already in its 15th month, making it longer than all but two downturns since World War II. For now, everything seems to be getting worse: The Dow is in free fall, jobs are vanishing every day, and one in eight American homeowners is in foreclosure or behind on payments.

But the economy always recovers. It runs in cycles, and economists are watching an array of statistics, some of them buried deep beneath the headlines, to spot the turning point. The Associated Press examined three markets housing, jobs and stocks and asked experts where things stand and how to know when they've hit bottom.
None of them expects it to come anytime soon.

JOBS
HOW BAD IS IT?: The U.S. unemployment rate hit 8.1 percent in February, a 25-year peak. The nation has lost 4.4 million jobs since the recession began in late 2007.
The job cuts began early last year, as the housing and construction industries slowed down. The collapse of the financial industry in the fall battered white-collar workers. Soon, layoffs spread across industries and income levels.

HOW MUCH WORSE COULD IT GET? The darkest days for the job market are almost certainly still ahead. With spending weak and credit markets stalled, experts think the economy will probably shed a total of 2.4 million jobs this year. That would mean an unemployment rate above 9 percent.
That would easily surpass the 2001 and 1990-91 recessions but trail the 10.8 percent rate of December 1982. Those expectations could be optimistic: The government's "stress tests" to check the strength of banks' balance sheets assume a 10.3 percent rate.
The job market will probably be weak for years, even if the economy starts to turn around next year. The unemployment rate may not fall back to its pre-recession level of 5 percent until 2013

WHERE'S THE BOTTOM?: Economist are keeping an eye out for two signs an inching up in companies hiring temporary workers and a rise in the number of hours worked by those who have managed to keep their part-time and full-time jobs. When business conditions improve, employers hire temporary workers first,

HOUSING

HOW BAD IS IT?: And even within a single metro area, price declines vary sharply. Faraway suburbs, where many buyers stretched to qualify for mortgages, have been hit harder than city centers.
This housing crash has spread pain more widely than any before it. Home prices fell about 30 percent during the Great DepressionBut the nation was less concentrated in urban centers then. And a much smaller proportion of adults owned homes.

Other housing downturns in recent decades have been regional. This one is truly national. Prices in the fourth quarter of 2008 fell in nearly 90 percent of the top 150 metro areas, according to the Realtors group. And 5.4 million homeowners, about 12 percent, were in foreclosure or behind on mortgage payments at the end of last year.
The nation's overall economic health is vital to the health of housing. "History tells us that as long as we're losing jobs, that's not good news for the housing market," Wachter says, the housing market can begin to recover.
But even with the Obama administration directing $75 billion in bailout money to stave off foreclosures, most economists don't expect home prices to bottom out before the first quarter of 2010. And don't expect an explosive rebound: Price increases will probably be modest when they come.

STOCKS
HOW MUCH WORSE COULD IT GET : Dow could fall to 6,000 if the economy slows much further and unemployment rises well past the current 8.1 percentlikelihood of that at about 30 percentpessimistic say contends the Dow might fall to 5,000 and the S&P to 500

WHEN WILL THE BOTTOM COME : In downturns over the past 60 years, the S&P 500 has hit bottom an average of four months before a recession ended and about nine months before unemployment hit its peak.

Investors will be looking for turnarounds in housing, lending and employment, plus signs that consumer spending has picked up. Then market players would be more likely to move their money from safe havens, such as gold, back into stocks.