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Things Get Worse, Slower

Barack Obama campaigned on a message of hope. It seems appropriate on this day, then, to note some glimmers amid the gloomy economic outlook.

There's not much, mind you: The economy is nowhere close to turning around. But there are signs of improvement in what mathematicians might call the economy's "second derivative." In plain English, things are still getting worse, but possibly at a slower pace.

Last week's reports on January manufacturing from the Philadelphia and New York Federal Reserve Banks are two examples. Both factory indexes were deep in negative territory, suggesting U.S. factory activity was still slowing down sharply. But they were also slightly less negative than in December.

Similarly, a weekly index of leading economic indicators published by the Economic Cycle Research Institute is still extraordinarily bad. Its smoothed, annualized growth rate was -25.5% in the week of Jan. 9, still near its lowest level on record, going back to 1949. But that growth rate has improved just a touch from its all-time nadir in early December of -30.4%.

Such low levels suggest the recession could deepen until the third quarter, according to ECRI managing director Lakshman Achuthan. The economy might not return to growth until months after that -- maybe not until 2010, a little longer than Wall Street may be expecting.

"There's a bottom out there, but maybe it's lower than you think," said Mr. Achuthan.

That bottom could be postponed if Mr. Obama's stimulus plans are hamstrung or prove ineffective. And improvement won't be lasting until bank balance sheets are repaired, clearing the way for more-normal financial markets. But here's hoping.