"Recent data ... suggest that the pace of economic contraction may be slowing" and "we continue to expect overall economic activity to bottom out, and then to turn up later this year," Federal Reserve Ben Bernanke is telling the House Budget Committee this hour.

The Fed has put a copy of Bernanke's prepared testimony online here.

What are some of the signs Fed policymakers see that convince them better times are ahead? Here are some excerpts from the chairman's testimony:

— "Consumer spending, which dropped sharply in the second half of last year, has been roughly flat since the turn of the year, and consumer sentiment has improved."

— "Activity in the housing market, after a long period of decline, has also shown some signs of bottoming. Sales of existing homes have been fairly stable since late last year, and sales of new homes seem to have flattened out in the past couple of monthly readings, though both remain at depressed levels."

— "Firms are making progress in shedding the unwanted inventories that they accumulated following last fall's sharp downturn in sales."

He adds, though, this "important caveat":

"Our forecast also assumes continuing gradual repair of the financial system and an associated improvement in credit conditions; a relapse in the financial sector would be a significant drag on economic activity and could cause the incipient recovery to stall. I will provide a brief update on financial markets in a moment."

At this moment, stocks indexes are down slightly in New York.

Related news: The Commerce Department says factory orders rose 0.7% in April from March. It was the second increase in three months.