U.S. clinging to slight hopes for 2009 economic recovery

“We now expect the economy to bottom out (in the third) quarter and for real GDP to register a positive increase by the fourth quarter,” said a report by Deutsche Bank's Peter Hooper and Thomas Mayer.

“However, the economy will remain fundamentally soft for the foreseeable future. The labor market has not yet bottomed, household buying power is negligible and consumers are highly leveraged with little access to credit.”

Joel Naroff at Naroff Economic Advisors said recovery doubts will grow following the payrolls data. “We need to take stock for a minute and ask whether this was a reversal in the downward trend in payroll losses or just a hiccup in the process of stabilizing the job market,” Naroff said.

“I have always argued that one month a trend does not make and that is the case with this data. But the employment reductions have to slow soon if the economy is to start to rebound.”

Said Nigel Gault, economist at IHS Global Insight: “The heavy loss of jobs in June is a warning that the road to recovery will be bumpy, but doesn't yet indicate that we have gone off the track.”

IHS Global Insight is predicting data for the second quarter, which ended June 30, will show a moderating 2.1 percent drop in GDP, with a swing to 0.6 percent growth in the third quarter and a 1.1 percent advance in the fourth.

Positive signs are emerging, including from the manufacturing sector.

The Institute of Supply Management's latest snapshot of the sector showed some improvement: even though the sector fell for 17th straight month, new orders were on the rise.

Barclays Capital economists are holding to their recently upgraded forecast of 2.5 percent growth in the third quarter, followed by a 3.5 percent expansion in the fourth quarter, which is among the rosiest of outlooks.

Barclays economist Dean Maki said the May payrolls report “overstated the pace of improvement in the labor market; but the (June) report does not fundamentally change the trend of gradual improvement.”

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