Reports on manufacturing and housing this week will probably show that the U.S. economy in May, although still in a recession, took additional steps toward establishing a recovery this year, economists said.
A 1% drop in industrial production last month, based on the median of 68 estimates in a Bloomberg News survey, mainly was due to auto-industry shutdowns that swamped gains elsewhere, analysts said. Other reports may show that builders began work on more houses as sales steadied and consumer prices rose.
The fallout from bankruptcies at Chrysler and General Motors Corp. is likely to reverberate through the industry and the economy in coming months, even as other areas stabilize. Plunging home prices, near-record low mortgage rates and tax credits for first-time buyers may help bring an end to the worst residential construction slump in seven decades.
"With Chrysler closing and GM downsizing, it's going to be pretty ugly," said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. Still, "we're in the process of hitting the trough of the recession, which we'll probably see within the next few months."
A decrease expected in the Federal Reserve's production figures, due Tuesday, would be the 16th in the last 17 months. The report is also projected to show the proportion of plant capacity in use dropped to 68.4%, the lowest since records began in 1967, according to the survey median.
Chrysler shut all its plants May 1 to clear as many unsold vehicles as possible from dealer lots while it restructures. The sale of most of Chrysler's assets to a group led by Italian automaker Fiat was completed last week.
GM, the biggest U.S. automaker, said June 1 that it was stopping work at 14 plants as it restructured under Chapter 11 bankruptcy protection.
General Electric Co. is among the companies starting to see some improvement in economic conditions. Chief Executive Jeffrey Immelt said at a conference last week that government efforts to thaw credit were starting to pay off, making it easier for companies to borrow.
"Capital markets have largely healed," Immelt said. "As a company you have to invest now. You have to invest when things are darkest."
One positive aspect of the excess in capacity is that it will help control inflation should raw-material costs keep rising, economists say. Consumer prices probably rose 0.3% in May as gasoline prices climbed, according to the survey median before a Labor Department report due Wednesday.
Federal Reserve Chairman Ben S. Bernanke told Congress on June 3, "We anticipate that inflation will remain low."
Concern over the amount of money the Fed has pumped into financial markets and the size of upcoming government security auctions to pay for stimulus efforts has caused interest rates on Treasuries to shoot higher in recent weeks.
The yield on the benchmark 10-year note reached 3.95% on Wednesday, after being as low as 2.54% on March 18, the day the Fed announced that it would buy Treasury securities in a bid to push borrowing costs down.
The housing recession that triggered the credit crisis and global slump is showing signs of bottoming as sales and construction have stabilized near historically low levels.
A Commerce Department report Tuesday may show housing starts last month rose 5.9% to a 485,000 annual pace from the previous month's five-decade low, while permits increased to 509,000 from the previous month's record low of 498,000.
Builders, however, are still hurting after having to mark down prices in an effort to spur demand. Figures from the Conference Board may point to recovery late in the year.
The New York private research group's index of leading economic indicators, due Thursday, probably rose for a second month in May, the survey median shows. It would be the first back-to-back increase since September-October 2006. The gauge signals the direction of the economy over the next three to six months.
At a glance
National Assn. of Home Builders releases housing market index for June.
President Obama speaks to the American Medical Assn. in Chicago on his healthcare overhaul plan.
Labor Department releases the producer price index for May.
Commerce Department releases housing starts for May.
Federal Reserve releases industrial production for May.
Senate Judiciary subcommittee hearing on cellphone text-messaging rate increases and competition in the wireless market.
Earnings reports expected from Adobe Systems, Best Buy and Smithfield Foods.
Labor Department releases the consumer price index for May.
Commerce Department releases current account trade deficit for the first quarter.
Senate Commerce, Science and Transportation subcommittee hearing on aviation safety.
Senate Special Committee on Aging hearing on Social Security in the 21st century.
Federal Reserve Chairman Ben S. Bernanke speaks at a financial literacy conference.
Senate Banking, Housing and Urban Affairs subcommittee hearing on over-the-counter derivatives.
Senate Commerce, Science and Transportation Committee hearing on the consumer wireless experience.
Earnings report expected from FedEx.
The Conference Board releases leading economic indicators for May.
Labor Department releases weekly jobless claims.
Freddie Mac, the mortgage finance company, releases weekly mortgage rates.
Treasury Secretary Timothy F. Geithner testifies before the Senate Banking, Housing and Urban Affairs Committee on the financial regulatory system.
Earnings reports expected from Carnival, Research in Motion and Winnebago Industries.
Earnings report expected from CarMax.