The worst of the economic crisis is over, according to HSBC chief economist Ian Morris, at least for the US economy. Making a presentation yesterday for finance executives, Mr. Morris said he was upbeat on near future prospects for the first time in a long time.

"The recession may soon be over," he said, "and we may even see a return to growth before too long." Key US indicators show that the economy has bottomed out after a perilous downward spiral following the collapse of Lehman Brothers and the AIG bailout last year, Mr. Morris said. He likened the massive government policy driven response to the crisis on a global scale to a "lab experiment" but said it seems to have been effective as markets are stabilising and the housing sector in the US is starting to show signs of recovery.

Mr. Morris is now predicting slightly positive growth for 2010 of 0.5 to 1.9 percent for the US economy.

There is a downside for the foreseeable future, however, and that is that it is likely to be a jobless recovery with Mr. Morris predicting US unemployment will continue to hover around ten percent. Those lucky enough to have jobs are unlikely to see any kind of wage increases in the near future as well, he added.

With his presentation, Mr. Morris said he wanted to address the key question, "Have we adjusted enough?" Lead indicators such as falling initial job loss claims, rising household savings and a levelling US housing market suggest the answer is positive.

One historical indicator that the worst of a recession is over is when weekly initial jobless claims begin to fall from their peak for five to seven weeks. It has now been ten weeks since the peak of US initial jobless claims, the economist said.

And Americans have cut back dramatically on spending, reversing a negative savings trend that had been in place since the 1990s. The savings ratio is now trending toward a long run average of four percent of GDP and Mr. Morris said that is enough for a turnaround.

"Household wealth was hurt very badly with the almighty collapse of housing and stock prices," he said. But by the end of the year housing prices should stabilise, said Mr. Morris. In markets like San Francisco, where housing prices had skyrocketed to the point the average household was spending 75 percent of its income on mortgage payments, prices have dropped to reflect a much more sustainable mortgage payments' level of 35 percent of income. In Miami, housing prices have dropped to 1990s' levels and while the Northeast is lagging at the moment, the economist expects New York, Boston and Washington DC will soon follow trend. Housing prices are currently falling due to the credit crunch rather than the bubble bursting in overheated markets, which happened two to three years ago, Mr. Morris noted. "Now, if policy can get credit going, we think prices will stabilise, given much more reasonable price levels." The economist also sees reasons for optimism when looking at a composite of 11 financial indicators including liability and credit spreads, oil prices, mortgages and stock market volatilities. Of these indicators, only oil is heading the wrong way. "If we aggregate these 11 indicators into once overall financial conditions index, the index is now not only lower than before the Lehman crisis, but the lowest since 2007," he said.

A big factor for the recovery is still in the hands of the banks, however. "The one thing that markets need to see is a concrete sign that bankers are loosening standards for lending," Mr. Morris said. That data is only available on a quarterly basis but appears on the right track.

In the meantime, as long as policy remains supportive, Mr. Morris is optimistic. With the low US Federal Reserve rate and the Fed pumping money into the economy through the TALF programme and the buying up mortgage-backed securities to the tune of $4 trillion, there is some concern over inflation. However, the economist said he believes deflation will be the more likely short-term result given jobless numbers.

"Indeed the Fed has only partially offset the trillions of dollars of destruction in private sector assets, suggesting, in our view, the Fed needs to do more, not less, to ensure financial conditions remain loosening," he said.

As the overall economic picture brightens, the corporate sector is still lagging, Mr. Morris said, because profits are still falling. Undistributed profits after share buybacks are nearing a record high, however, he added, which bodes well for a return to capital spending in the near future.

Financial conditions have loosened more in the past three months than was predicted and must remain loose. "Given this has been a once in a century crisis, we are believers that fiscal ease should err on the side of being too loose rather than not loose enough," he said. "A move toward sustainability now would have disastrous consequences for growth and would prove self-defeating."