We’ve seen two quarters of declines in online advertising revenues, but signs of a recovery, or at least a reset, are beginning to show. In a note today explaining why he is bullish on Google, Citi Internet analyst Mark Mahaney makes the case for cautious optimism.

He predicts stability in search advertising revenues, a significant increase in spending by retail advertisers in both search and display ads, and major growth in mobile ad revenues. While it is “too early to call the quarter,” his checks with search engine marketing firms suggest that overall spending and cost-per-clicks will at least be in line with the second quarter.

On top of that pillar, there is the “snowballing momentum” for mobile search ads. He writes:

Advertisers are seeing 10X increase in click-thrus via Mobile devices. Mobile Search activity is ramping fast this Smartphone Summer, and ad dollars are following.

That is off a small base, but growth is always good. With all of the new Web phones from the iPhone and Android to the Palm Pre and Blackberry, the Summer of Smartphone Love seems to be paying off.

Finally, Mahaney sees movement in spending budgets among ecommerce companies. In contrast to 3 percent annual growth in marketing spends among these retailers in the first half of the year, he expects them to ramp up online advertising spending by 20 percent in the second half of the year as they gear up for the holiday season.

But will growth in mobile and retail be enough to move the needle for the entire industry?