Looking ahead for signs of the slump's end

WASHINGTON - With any luck, the second half of this year will be better than the so-far-rocky first half.

But when the economy begins to snap out of its funk, how will we know?

Like calling a recession, pinpointing the turnaround can be as much art as science. Economists agree there could be some strong signals to look for, however: a calmer stock market, an end to falling home prices, and more jobs being created.

We're not there yet.

Although some economists have backed off their recession talk, the economy by all accounts still is suffering through difficult times:

Economic growth has slowed sharply.

Employers have cut jobs for four months in a row.

Problems in housing, credit and financial markets have forced skittish people and businesses alike to hunker down.

Still, there's hope that the economy's growth will begin picking up later this year.

Experts will be looking at a variety of barometers to mark the arrival of a rebound, but it's by no means definitive or foolproof.

One important indicator is the stock market. The turbulence that has engulfed Wall Street since last summer and hit a crisis point with the near collapse of investment firm Bear Stearns Cos. Inc. has calmed somewhat.

The Dow Jones industrial average, for instance, has clawed its way out of a recent bottom - of 11,740.15 - hit in March. However, the index hovering just under 13,000 is well below the 14,087.55 it reached in early October last year. Financial markets remain fragile.

Investors are looking ahead - at the economy's prospects and individual businesses - when they make investment decisions.

"The canary in the coal mine is really financial markets," said Sung Won Sohn, an economics professor at California State University. "The stock market recovery almost always precedes the economic recovery by about six months or so."

In the current bout of economic troubles, fallout from the two-year-old housing collapse and subsequent credit and financial problems has driven the pullback by consumers, businesses and Wall Street.

That is why economists will be looking for signs of stabilization in the housing market. Specifically, housing prices will have to stop falling or at least decline at a slower pace in many parts of the country. As many Americans have watched their single-biggest asset - their home - shrink in value, they have become much more cautious in the spending, contributing to the economy's slowdown.

Improvements in housing prices also are important to a return to stability because housing prices figure into the value of a host of securities, such as mortgage-backed securities and derivatives.

Improving housing prices also would ripple through credit markets, making lenders more willing to make loans to people and businesses. That, in turn, would help bolster confidence in financial markets, economists said.

"Until the housing and credit markets improve, businesses and consumers will be doubting Thomases - there is no question," said Brian Bethune, economist at Global Insight Inc.