When economy bottoms out, how will we know?

ALAN ZIBEL, CHRISTOPHER LEONARD and TIM

PARADIS, AP Business Writers

When will this wretched economy bottom out? 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, according to Moody's

Economy.com.

WHERE'S THE BOTTOM?: Economist Sophia

Koropeckyj, a managing director at Moody's

Economy.com, is 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, she said, and a pickup in

permanent hiring wouldn't be far behind. Koropeckyj

estimated that could come in mid-2010.

HOUSING

HOW BAD IS IT?: The median price of a home sold in the

United States fell to $170,300 in January, down 26

percent from a year and a half earlier, according to the

National Association of Realtors.

But that figure masks the complexity of the market. Price

drops have been far steeper around Phoenix and Las

Vegas, where new homes sprouted everywhere during the

housing boom, than, say, in Detroit, where economic

problems predate the recession.

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 Depression, according to calculations by Yale

University economist Robert Shiller. But 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.

HOW MUCH WORSE COULD IT GET?: The Federal

Reserve estimates home prices could fall 18 to 29

percent more by the end of 2010. Declines will probably

be less severe in cities with healthier economies that

don't have a glut of unsold homes, like Tulsa, Okla., and

Wichita, Kan.

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," said

Nicolas Retsinas, director of Harvard University's Joint

Center for Housing Studies.

WHERE'S THE BOTTOM?: Susan Wachter, a professor

of real estate at the University of Pennsylvania, is

watching the backlog of unsold homes. At January's sales

pace, it would take about 9 1/2 months to rid the market of

 all those properties. A more normal pace would be six

months.

Once foreclosures level off and the backlog is cleared,

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 BAD IS IT?: The Dow Jones industrial average and

the Standard & Poor's 500 index have lost more than half 

their value since the stock market peaked in October

2007. It's the worst bear market since the aftermath of the

crash of 1929, when the Dow plunged 89 percent and the

S&P 500 index tumbled 86 percent. 

HOW MUCH WORSE COULD IT GET? Analysts generally

think Wall Street has endured the worst of the bear

market. But many of those same analysts never thought

the market would fall this far.

Jack Ablin, chief investment officer at Harris Private Bank

in Chicago, said the Dow could fall to 6,000 if the

economy slows much further and unemployment rises well

past the current 8.1 percent. He pegs the likelihood of that

at about 30 percent. Others are more pessimistic. Bill

Strazzullo, chief market strategist for Bell Curve Trading,

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.

Other investors may look to obscure indicators such as

the Baltic Dry Index, which tracks the cost of shipping iron

ore, grain and other materials. Rising rates can indicate

demand for raw materials is increasing, which suggests a

strengthening economy.

But most of all, 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.

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