WASHINGTON — The International Monetary Fund’s No.2, John Lipsky, said he doesn’t expect unemployment to start declining in wealthy nations until “well into next year” — and even that pessimistic forecast depends on governments making significant progress in cleaning up bank balance sheets.

He also said that the recent rise in bond-market interest rates is a sign the global economy is healing, and that global governments need to begin planning for ways to reduce the justifiably large budget deficits that will be created by their recession-fighting efforts.

“Economic data may indicate that GDP \[gross domestic product\] has stopped contracting and started increasing, but the ‘man on the street’ will not be completely convinced things have turned around until they can stop worrying about losing their jobs,” Mr. Lipsky said in an interview. The IMF has said it expects the global recession to end next year, but unemployment tends to rise for some time afterward.

Mr. Lipsky said that he didn’t believe that the recent rise in U.S. government bond yields presaged a rise in inflation nor does that sharp increase in interest rates that could choke off a recovery. At 3.467%, yields on 10-year Treasury notes are well over mid-March’s 2.5% level.

He said the higher yields could be a sign the global economy is healing. “The recent steepening curve has been driven by the long end, which is a potential sign of increased investor conviction that the economy will return to growth in the coming quarters,” said Mr. Lipsky, a former chief economist at what is now JPMorgan Chase. “This corresponds to our sense that policy actions have been successful in truncating the downside risks to growth that previously couldn’t have been ruled out,” he said.

In April, The IMF forecast a very weak recovery next year of 1.9% globally and zero growth in wealthy nations. The IMF is planning to update its forecasts in early July, but so far, Mr. Lipsky said, “our broad assessment of the outlook hasn’t substantially changed.” The tepid recovery should keep inflation in check, the IMF believes.

Earlier this year, the IMF was pushing G-20 industrialized nations to boost fiscal spending by 2% of GDP in 2009 and 2010. The G-20 is on line to hit the target this year, though not next year, the IMF calculates. Now, the IMF argues that the 2% additional stimulus may not be necessary for 2010 because spending that automatically kicks in when an economy contracts –- unemployment insurance, for instance –- are likely to be greater than the IMF initially anticipated.

Now the IMF has two messages: it’s too early to withdraw stimulus because of economic uncertainty, but governments must start planning how to reduce budget deficits eventually. “Even when we were endorsing near-term stimulus, we coupled that with the admonition that the stimulus had to be undertaken in a way that maintained medium-term fiscal sustainability,” said Mr. Lipsky.

Both imports and exports have taken a severe hit since the recession accelerated in September 2007, but new data offer another indication of stabilization — at least on the import side.

Panjiva, Inc., a U.S.-based firm that helps brands find overseas suppliers, tracks customs data and finds that the number of “significant” companies shipping goods to the U.S. have stopped declining after a big drop-off beginning in November. Panjiva defines a significant supplier as one who makes 10 or more shipments to the U.S. in a month.

“The number of companies shipping to U.S. customers is no longer in free fall — definitely a reason for optimism,” Panjiva said.

But the environment remains in a precarious state. Panjiva compiles a Watch List of manufacturers suffering a 50% decline in volume shipped to U.S. customers in the most recent three month period, versus the same period a year ago. In April, 31% of significant suppliers were on that list, up from 30% in March and 24% as recently as December of last year.

Panjiva collects publicly available customs information to compile its data.

Americans could save as much as $5 billion a year — or $275 per household — by borrowing from their 401(k) retirement accounts instead of more costly consumer loans, Federal Reserve economists Geng Li and Paul A. Smith conclude in a recent Fed working paper.

Many households eligible for 401(k) loans “carry relatively expensive consumer debt that could be more economically financed via 401(k) borrowing… We estimate that such households could have saved as much as $5 billion in 2007 by shifting expensive consumer debt to 401(k) loans. This would translate into annual savings of about $275 per household — roughly 20 percent of their overall interest costs — with larger reductions for households that carry consumer debt at high interest rates or who hold larger 401(k) balances,” they say.

The key advantage of a 401(k) loan is that it reduces the need for paying interest to outside lenders. Indeed, since the “borrowed” assets are already owned, a 401(k) loan is really just a withdrawal coupled with a schedule of replenishing contributions (with interest). A secondary advantage is that the transaction costs are typically quite low. Nonetheless, many financial advice publications discourage 401(k) borrowing, “Some worry that 401(k) borrowing simply encourages over-consumption, undermining retirement savings goals either indirectly (via unnecessary consumption) or directly (via reduced regular 401(k) contributions or defaulting on repayments),” they acknowledge.

So why don’t people do this? “Risk-aversion, self-control problems, and confusion about the potential gains,” they say.

They suggest “better financial education,” specifically posing these four questions to a would-be 401(k) borrower;

• 1. If you did not borrow from your 401(k), would you borrow that money from some other source (e.g., credit card, auto loan, bank loan, home-equity loan, etc.)?
• 2. Would the after-tax interest rate on the alternative (non-401(k)) loan exceed the rate of return you can reasonably expect on your 401(k) account over the loan period?
• 3. Would you be able to make your 401(k) loan payments without reducing your regular 401(k) contributions?
• 4. Are you comfortable with the requirement to repay any outstanding loan balance within 90 days of separating from your employer, or pay income tax and a 10% penalty on the outstanding loan?

If a person answers yes to all four questions, then a 401(k) loan could be advantageous; otherwise, other options might be better.

Allowing households to repay 401(k) loans gradually even after they leave their jobs “could improve household welfare by reducing the risks of 401(k) borrowing,” the Fed economists said.

The Fed’s 2007 Survey of Consumer Finances found about 15% of eligible households had borrowed from their 401(k) accounts. The fraction has been steady since 1995, but a growing number of borrowers say they used to money to pay off other debt. Media reports suggest more families are borrowing from retirement accounts in the current recession, but the Fed data isn’t recent enough to illuminate that.

The tax code limits the size of 401(k) loans to the lesser of $50,000 or 50% of the vested plan balance. In general, loans must be repaid within five years, though loans for the purchase (not refinance) of a principal residence may be repaid over a longer period (e.g., 15 years). Repayments are typically made via payroll deduction, but outstanding balances generally must be paid within 90 days of separation from an employer.

Economists and others weigh in on the upward revision to GDP.

• Disposable personal income was revised upward relative to the advance estimate, but the source of this upward revision is worth noting. Wage and salary income was actually marked down modestly from the advance estimate, but the estimate of current personal taxes paid was trimmed down to reflect the lower income tax withholding that is part of the government’s efforts to stimulate the economy. In terms of the prospects for income growth going forward, the effects of lower withholding will fade, but what will be ongoing job losses and declining aggregate hours worked over coming months will mean that aggregate earnings continue to decline. With labor earnings the primary support for consumer spending, this does not bode well for any meaningful rebound in consumer spending over the near term. –Richard F. Moody, Forward Capital



• No major surprises in this revision, and the small ones that did occur were offsetting — slightly less consumption and slightly less inventory liquidation. Revisions do not alter the character of the quarter, which shows real spending turning up a major setback in the second half of 2008 and still one of the largest quarterly liquidation rates of the post World War II era. –Goldman Sachs
• The surprise is the downward revision to consumption, to 1.5% from 2.2%; most of the downshift was in spending on non-durable goods… All the net revision to GDP came from inventories, down $91.4 billion compared to the initial estimate of $103.7 billion. We are baffled when we read that an inventory rebuild will support growth in second half; the aggregate inventory-to-sales ratio still exceeds its trend by more than in the recessions of 1990-1 and 2001. –Ian Shepherdson, High Frequency Economics
• The upward revision was slightly worse than expected, likely because the new estimate for consumer spending was lower than most forecasters had anticipated. Today’s release also contained the government’s first estimate of corporate profit growth for the first quarter.. The rebound was driven by a 95% gain in profits in the financial services sector — by far the largest quarterly increase in the post-war period. Despite the sharp gain, however, financial sector profits remain down 50% from their peak. –Nomura Global Economics
• The upward revision to GDP resulting from a somewhat smaller (but still very sizable) decline in inventories was largely as advertised and should not be viewed as news. However, the 3.4% increase in economic profits (+13.0% on an after-tax basis) is news and points to a smaller decline in GDP on an income basis than reported on an expenditure basis. It appears that corporations did a phenomenal job in cutting costs in the first quarter (particularly in reducing head count) and despite a 3.1% drop in nominal GDP (whole economy revenues), U.S. companies managed to increase profits. –RDQ Economics
• All the incoming data suggest that the rate of decline in economic activity is decelerating… The key drivers of the gradual improvement in the outlook will be the massive monetary and fiscal stimulus (the full impact of the latter is expected to occur late this year and early next year) and a turn in the inventory cycle. Even if companies don’t accumulate inventories, but simply stop cutting, this will help growth, albeit temporarily. –Nariman Behravesh, IHS Global Insight

Compiled by Phil Izzo

Offer your reactions in the comments section.

Dig into an interactive summary of economists’ forecasts for the coming year from the latest WSJ.com survey.

There was a lot of housing news out this week. Here’s a look at what happened:

HOME SALES:
Mortgage rates jumped this past week to their highest levels in more than three months, threatening a quick rebound in the housing sector (WSJ)

The S&P/Case-Shiller national home-price index fell 19.1% in the first quarter versus a year earlier — the steepest decline in 21-year history of the data (WSJ)

Existing-home sales rose 2.9% in April from March, though the number of sales was 3.5% below the level reached in April 2008, according to the National Association of Realtors: (WSJ)

Big price declines are spreading beyond the hardest-hit housing markets (WSJ)

The FHA rolled out details of its plan to allow first-time home-buyers to apply an $8,000 tax credit towards a home purchase: (WSJ)

The ranks of real estate agents are shrinking as the housing recession deepens, raising questions about the long-term outlook for the profession: (LAT)

Homes are getting smaller as buyers look for the most affordable purchases: (LAT)

FORECLOSURES:

Job losses are driving a new round of foreclosures on loans made to borrowers with good credit (NYT)

Mortgage delinquencies climbed in the first quarter. Nearly one in eight first-lien mortgages is 30 days or more past due or in foreclosure, the highest ever surveyed by the Mortgage Bankers Association: (WSJ)

Modified subprime loans are going bad. Between 65%-75% of modified subprime loans are going 60-days or more delinquent within 12 months of being modified, according to Fitch Ratings: (WSJ)

Bank of America has modified over 50,000 loans as part of a legal settlement: (WSJ)

LOCAL NEWS:

Manhattan rents began to fall even before last fall’s financial trainwreck: (Real Deal)

Prices in Las Vegas have returned to 1999 levels according to a new report by DataQuick: (OC Register)

More Long Beach oceanfront condos hit the auction block (LAT)

Everett Fenton Gidley

Talent manager Sandy Gallin’s L.A. home. Click here to see more photos of the property.

Here’s your weekly dose of high-end real estate news:

Actor Hank Azaria buys a home in Los Angeles’s Bel-Air neighborhood for $10 million. Built in 1932, the gated, 9,000-square-foot home has seven bedrooms, 10 bathrooms, four fireplaces, a dance studio, an art studio, a gazebo and a pool. (Los Angeles Times)

Actress Shannen Doherty lists her Malibu home for $4 million. The gated contemporary home is 3,410 square feet and has five bedrooms and four-and-a-half bathrooms. It also has high-pitched ceilings, terra-cotta floors, multiple skylights, a pool and a spa. (Los Angeles Times)

Sandy Gallin, a talent manager who represented Dolly Parton, Barbra Streisand and Michael Jackson, lists his Los Angeles home for $32 million. Mr. Gallin, who has made a second career of buying homes, renovating or replacing them and selling them to celebrities, bought the home two years ago for about $8 million from the estate of actress Jane Wyatt, who died in 2006. Mr. Gallin restored the home, built in 1936 by architect Paul Williams, and increased its size by nearly a third, to just over 12,000 square feet. It now has seven bedrooms, 12 bathrooms, a yoga room, a steam room and a pool. Click here to see photos of the home. (WSJ)

Three homes in Palm Springs, Calif., that belong to the estate of screenwriter and author Sidney Sheldon hit the market. The main estate, built in 1959, is listed at $1.7 million. Mr. Sheldon bought the home, located at the foot of the San Jacinto Mountains, in 1977. The adjacent guesthouse, built in 1948, is on the market for $1.9 million. Mr. Sheldon bought it from playwright Moss Hart and his wife, actress Kitty Carlisle for $775,000 in 1992. Another guesthouse across the street has an asking price of $2.2 million. Mr. Sheldon, who was a writer for the show “I Dream of Jeanie,” died in 2007. (Zillow)

Former software executive Marty Sprinzen lists his condominium on New York’s Fifth Avenue for $24.5 million. He bought the 4,500-square-foot apartment for $15.8 million in January 2007, records show. He spent $3 million renovating, says listing agent Penny Toepfer-Guttman of Brown Harris Stevens. The ninth-floor condo overlooks Central Park and has three bedrooms, a separate maid’s room and an 850-square-foot limestone terrace. Click here to see photos of the home. (WSJ)

The home used in the film “Ferris Bueller’s Day Off” hits the market in Highland Park, a suburb of Chicago. The price tag is $2.3 million. Designed by A. James Speyer in 1953, the home has four bedrooms in 5,300 square feet. It also has a glass pavilion, designed by architect David Haid. (New York Times)

Many luxury summer homes across the country are still for sale, with prices down an average of 20% from their 2007 peak. Sellers are cutting prices even further to try to move their properties by summer. (Barron’s)

Three more global corporate bond issuers defaulted this week, bringing the year-to-date tally to 135, more than four times the 32 defaults recorded in the same period of last year, Standard & Poor’s said.

All three of this week’s defaulters (Berry Plastics Group Inc., Metaldyne Corp. and Visteon Corp.) were based in the U.S., bringing the tally of defaults this year to 96 issuers in the U.S, the rating agency said. That matches the number of defaults for all 12 months of 2008.

Another 21 defaults so far this year were in emerging markets, seven in Europe and the remaining 11 in other developed countries (Australia, Canada, Japan, and New Zealand).

“The precipitous increase in defaults reflects a pronounced decline in economic fundamentals and earnings prospects, as well as the continued credit freeze, effectively halting lending to speculative-grade borrowers,” S&P said Friday. It sees four other factors making the current environment “more conducive” to defaults: deep recession in the U.S., a record-high proportion of issuers in recent past with speculative-grade ratings, the highest volume of low-rated issuance since 2003, and the seasoning of much of the debt rated ‘B-’ or lower issued in the past several years.

Three more global corporate bond issuers defaulted this week, bringing the year-to-date tally to 135, more than four times the 32 defaults recorded in the same period of last year, Standard & Poor’s said.

All three of this week’s defaulters (Berry Plastics Group Inc., Metaldyne Corp. and Visteon Corp.) were based in the U.S., bringing the tally of defaults this year to 96 issuers in the U.S, the rating agency said. That matches the number of defaults for all 12 months of 2008.

Another 21 defaults so far this year were in emerging markets, seven in Europe and the remaining 11 in other developed countries (Australia, Canada, Japan, and New Zealand).

“The precipitous increase in defaults reflects a pronounced decline in economic fundamentals and earnings prospects, as well as the continued credit freeze, effectively halting lending to speculative-grade borrowers,” S&P said Friday. It sees four other factors making the current environment “more conducive” to defaults: deep recession in the U.S., a record-high proportion of issuers in recent past with speculative-grade ratings, the highest volume of low-rated issuance since 2003, and the seasoning of much of the debt rated ‘B-’ or lower issued in the past several years.

Three more global corporate bond issuers defaulted this week, bringing the year-to-date tally to 135, more than four times the 32 defaults recorded in the same period of last year, Standard & Poor’s said.

All three of this week’s defaulters (Berry Plastics Group Inc., Metaldyne Corp. and Visteon Corp.) were based in the U.S., bringing the tally of defaults this year to 96 issuers in the U.S, the rating agency said. That matches the number of defaults for all 12 months of 2008.

Another 21 defaults so far this year were in emerging markets, seven in Europe and the remaining 11 in other developed countries (Australia, Canada, Japan, and New Zealand).

“The precipitous increase in defaults reflects a pronounced decline in economic fundamentals and earnings prospects, as well as the continued credit freeze, effectively halting lending to speculative-grade borrowers,” S&P said Friday. It sees four other factors making the current environment “more conducive” to defaults: deep recession in the U.S., a record-high proportion of issuers in recent past with speculative-grade ratings, the highest volume of low-rated issuance since 2003, and the seasoning of much of the debt rated ‘B-’ or lower issued in the past several years.

A spike in mortgage rates could chill a surge in refinance activity that began two months ago when rates dropped below 5% to nearly 50-year lows.

Rates ended at 5.44% on Thursday, up from 5.03% on Tuesday, according to HSH Associates. Rates have gone up because they’re closely tied to yields on long-term Treasury bonds that made similar jumps in recent days. (In today’s WSJ we take a deeper look at why rates are rising, and what policymakers may do about it.)

Applications for more than half of all borrowers who’ve applied to refinance but haven’t yet locked in low rates could perish if rates stay higher, according to an estimate by Mark Hanson, president of the Field Check Group, a research firm.

It’s less clear what effect the surge in rates will have on home purchases, because interest rates are just one of a handful of decision-making factors on buying a home. Some prospective buyers may have qualified for a certain loan at 5%, but won’t qualify at 5.5% because the higher mortgage payments may push their debt-to-income ratios above qualifying levels. Also, a big spike in rates that sticks around may send buyers back to wait on the sidelines. “Right now is a catastrophic time for the housing market to have interest rates going up,” says Mr. Hanson.

Lower mortgage rates had made homes even more affordable at a time when prices have been falling, but higher rates could offset some of that affordability. Each 0.10 percentage point increase in mortgage rates is equivalent to a 1% rise in home prices, according to estimates from Credit Suisse. That means if higher rates stick, they could push down demand and send prices even lower.

Rates at 5.5% would normally be considered quite low. (They stood at 6.5% last October.) But consumers have grown used to rates being at or below 5% over the past few months. “The rug has been pulled out from people,” says Michael Menatian, a mortgage banker in West Hartford, Conn.

Could higher rates be here to stay? “It’s a little too early to tell,” says Keith Gumbinger of HSH Associates. While he says it’s more likely that rates will edge back down in the coming weeks, “it’s certainly not out of the question that this isn’t a short-term flareup.”