By John S. McClenahen While other economists are still arguing over whether the U.S. economy is in recession, Bruce Steinberg, chief economist at Merrill Lynch & Co., is describing the shape of economic recovery. The economy will "snap back," its recovery looking like a "V" when plotted a graph, says Steinberg, who stubbornly continues to insist the American economy is not slipping into recession. "True, in January, the Purchasing Managers' [Manufacturing] Index fell to 41.2, its worst showing since 1991," he acknowledges. "But the rapid decline of the industrial sector is actually a testimony to hugely improved supply-chain management. We believe that inventory excess will be largely worked off by mid-year, leading to a much better second half." How much better? Merrill Lynch foresees GDP increasing at an inflation-adjusted 3.2% annual rate in this year's third calendar quarter and at a 3.8% annual rate in the fourth quarter. Coupled with a projected 1.5% annual rate in the current quarter and a 2.2% annual rate in the second quarter, 2001 would post a 2.3% GDP gain. Steinberg also is predicting that the influential federal funds rate, now at 5.5%, will be down to 4.75% by May.