Large banks see recession ending by late summer

WASHINGTON -- The nation's largest banks expect the economy to recover from its deep slump by late summer but remain weak until next year.

"The economy will return to growth but not to health," Bruce Kasman, chief economist for JP Morgan Chase and chairman of the American Bankers Association's Economic Advisory Committee, said Tuesday.

The committee, which includes economists from Wells Fargo, PNC Financial Services Group, Morgan Stanley and others, expects gross domestic product to increase at an annual rate of 0.5% in the July-September quarter, after falling a projected 1.8% in the April-June period.

Federal Reserve Chairman Ben Bernanke also says the economy could recover by the end of this year.

Jobs will remain scarce and the unemployment rate will keep rising even after the recovery begins, the committee said, peaking at 10% in the first three months of 2010.

The rate will remain elevated through 2010, and will finish the year at 9.5%, the committee forecast. That would be above the current jobless rate of 9.4%.

Still, consumer spending has stabilized after dropping sharply late last year, Kasman said, and businesses have cut inventories, which should lead to reduced layoffs.

In addition, credit is more widely available than it was at the height of the crisis last winter due to the government's efforts to rescue the banks, he said.

Yet a report from the Treasury Department Monday showed that lending by the 21 largest banks receiving federal bailout money dropped in April for the fifth time in six months. Total lending by those banks fell to $4.34 trillion, down 0.8% from March.

The Obama administration's $787 billion stimulus package is also contributing to the recovery, Kasman said.

The committee expects the housing market to bottom this year and contribute to economic growth for the first time in several years. Home prices will be "modestly higher" next year, they said.

Signs of recovery in the housing market appeared Tuesday as construction of new homes and apartments jumped 17.2% to an annual pace of 532,000 units. That was above analysts' expectations of 500,000 units.