Look for the recession to come to an end this summer, though it may not feel that way for several more months. Orders for durable goods, an important sign of business investment, have risen three of the past four months. Both consumer income and spending have picked up of late, and sales of existing homes are on the rise. What’s more, the federal government’s $787-billion stimulus program will kick into high gear from now through the end of the summer. The biggest woes are behind us.

But the recovery will be lethargic, progressing at a pace well shy of other economic bouncebacks since the 1940s. Why? Unemployment will continue to rise into early next year and then decline only slowly. Consumers, while showing signs of more willingness to spend, are still weighed down with debt. And businesses will take a wait-and-see attitude toward investment. An abundance of caution means capital spending is likely to continue to shrink until the second half of 2010. And though exports will tick higher, growth prospects are dampened by overseas economies still struggling to end their own recessions.

For the calendar year in 2010, we expect gross domestic product to rise about 2% after shrinking nearly 3% this year.

The Federal Reserve won't tighten monetary policy anytime soon. While the end of the recession appears likely this summer, central bankers don’t want to risk short-circuiting a recovery by raising rates too soon. Although some officials want to start preparing the markets for a shift in policy, Fed Chairman Ben Bernanke will prevail in holding such statements off, saying that with unemployment high and rising, there’s no threat of inflation. Expect the Fed to hold the federal funds rate -- the overnight loan rate banks charge each other -- between 0% and 0.25% until sometime during the second half of next year.

Bernanke & Co. will, however, continue to insist that it remains vigilant, keeping a sharp eye out for any signs of inflation, in an effort to reassure jittery bond traders. They worry about the trillions of dollars in Treasuries that will need to be sold to fund soaring budget deficits. Although the Fed will strive to manage inflation expectations, it won’t be able to curb volatility in the 10-year Treasury bond. Look for yields to bounce between 3.5% and 4%, now to year-end. Next year, with economic recovery taking hold and ongoing concerns about the budget deficit, Treasury yields will move above 4%.

The surge in prices of crude oil and gasoline isn't causing a broad increase in consumer prices. That's because many businesses aren't able to raise prices and rising unemployment nullifies wage gains -- conditions not likely to change this year. Over the past 12 months, the Consumer Price Index has fallen 1.3%, a drop not seen since 1950. The 12-month decline is due largely to the plunge in oil prices since the peak of $147 per barrel last July. But now oil is headed back up. Despite the rise in energy prices, there remain a few observers who are still concerned about deflation, especially if the recession gets worse. We don't expect deflation, or much inflation, this year.

Inflation's increase at the consumer level will be kept to about 1.5%, measured from last December to December 2009. That follows a meager lift of 0.1% last year. This year, the core rate of inflation, which excludes food and energy, will go up about 1.5%, following a rise of 1.8% in 2008.

The unexpected increase in job losses during June doesn’t change our view that the recession will end around early fall. Large layoffs will diminish, but the impact of continued high unemployment will mean a very weak economy that will show only a small increase in growth during the fourth quarter. It will be early 2010 before we see net payroll increases. A total of 2.9 million jobs were lost in 2008, and losses of at least 4.5 million are in the cards for this year, while 2010 will see a small net gain. The unemployment rate, which ticked up to 9.5% in June, will continue rising well above 10% in 2010 before leveling off around midyear. It takes net job gains of about 127,000 a month just to hold the unemployment rate steady.

Though the recession is becoming less severe, labor woes will linger. After the 2001 recession ended, job growth did not resume for two years. When this recovery begins, companies will extend hours for existing staff and use overtime as needed to fill orders. In June, employers trimmed worker hours, with the average workweek setting a new low of 30 hours, the lowest since the Labor Department started tracking the number in 1964. Firms will wait to see that improved activity is maintained before adding to payrolls. And this time, hiring will be slim at best in key sectors of autos and housing construction. In some sectors, many high paying jobs will never return.

Annual world trade will shrink for the first time since 1982, thanks to the global recession. This year, U.S. exports will register their worst performance since 1945: -16%, compared with 11.5% growth in 2008. Foreign sales to all major customers will drop. The relative strength of the dollar will hurt the competitiveness of U.S. goods and services against those from the euro zone. And trade financing will remain hard to find as long as credit markets remain tight. The U.S.' recession will cause imports to contract by 19%, their sharpest drop since 1938, after expanding 7.3% in 2008. The net effect will be to reduce the trade deficit for the third year in a row. The trade gap will narrow to $497 billion, or 4.4% of U.S. gross domestic product, in 2009, down from $681 billion and 3.6% of GDP in 2008. It will mark the smallest trade gap relative to GDP since 2001.

We see oil averaging about $63 a barrel in 2009, down from an average of $100 last year. Oil prices will be in for a rollercoaster ride during the next month or so. From around $72 a barrel now, they'll climb to $85 or so by July and then retreat. The oil market is being buffeted simultaneously by the dollar's continued weakening against the euro and other key currencies, as well as a move by the Organization of the Petroleum Exporting Countries (OPEC) to cut exports below quotas. The cartel is gambling it can ratchet up oil prices by $30 a barrel from the $40 to $50 range in which it had languished this year until mid-May.

Speculators are jumping on the bandwagon. They're latching onto hints of an economic turnaround, which would boost fuel and oil consumption, to justify bidding up crude prices. We don't see this leading to a rerun of last year's wild market ride that saw oil prices careen from less than $90 a barrel in January to nearly $150 by July and collapse to the $40 range by year-end.

Oil and fuel prices will be reined in within a few weeks as consumers, who remain financially strapped, cut back on driving when gasoline prices approach $3 a gallon. In addition to curtailed demand, the oil price jump is likely to peter out by midsummer because there just aren't as many speculators to keep driving prices higher as there were in 2008. Many large hedge funds that invested scores of billions of dollars in oil last year are shrunken or defunct. Look for crude oil to bubble down to around $65 a barrel by year's end.

Gasoline prices should average around $2.50 per gallon in 2009, about $1.15 a gallon less than in 2008. They'll likely rise another 40¢ or so to about $3 a gallon by mid-July, $2.50 right after Labor Day and $2.25 by December. For diesel, look for prices to go up from about $2.55 now to $3.25 by early October. The usual seasonal decline in demand should ease diesel pump prices to $2.85 a gallon by year's end.

Retail heating oil prices are likely to increase from around $2.60 a gallon now to $2.80 from July through early October. Subsiding oil prices likely should offset seasonal demand increases for heating oil, yielding an average retail price of $2.75 a gallon by December. Natural gas prices are set to swoon from $3.85 per million British thermal units (MMBtu) to around $3.25 by July. Prices should then strengthen slowly, reaching about $6.50 MMBtu by December. Natural gas' winter price range: $6 to $6.50, barring a prolonged Arctic blast, roughly on par with this past winter's prices for the fuel.

There are some glimmers of hope in the housing market, although sales, starts and prices will be down this year. Relatively low mortgage rates, tax credits for new homeowners and falling prices are luring more buyers. Sales of foreclosed homes are brisk in many parts of the country, indicating that buyers are willing to make a deal for a good value. This indicates that sales continue to head toward a bottom. However, surging job losses will keep many potential home buyers on the sidelines and result in more foreclosures, keeping downward pressure on builders. Housing starts won't hit a bottom until the end of this year.

It will be 2011 before housing returns to a somewhat normal annual sales total of around 6 million. After home sales hit bottom this year, they will total only 5 million. Foreclosures, meanwhile, will continue to increase in 2010, dampening home prices. Overall, the national average price will decline about 10% this year, albeit with wide local differences. Falling prices will increase the number of homes going to foreclosure as about one-third of mortgage holders owe more on their loan than what their house is worth.

Retailers will find it difficult to lure in consumers this year. Retail sales increased from April to May, but were still off over 2% from May 2008, excluding gasoline and auto sales. We see retail sales declining less than 1% in 2009, still a drop compared with 2008, when sales were about flat versus 2007.

The second half of 2009 stands to be stronger than the first. Widespread layoffs should begin to moderate, although the unemployment rate will continue to increase into early 2010. Consumer confidence is rising, but it continues to be dampened by declining home values. At the mall and other retail locations, shoppers may indulge in a few discretionary purchases in the next few months, but they will largely focus on value and necessities. That will provide a boost for grocery stores, discounters and dollar stores. It will hurt many others. About 150,000 stores are expected to shut their doors this year.