The economy has since shown signs of recovery after plunging into one of the most severe recessions. Recently there are further credible signs.
Yield Spread
When short term interest rates are lower than long term rates, the yield curve is sloping upwards, often preceding a significant economic recovery. The yield spread is the difference between two different yields.
Yield spread between 30 year Treasury bonds and 2 year notes has now risen above 300 basis points, when a year ago the yield spread was about 170 basis points. The yield spread between 2 year and 10 year notes has reached almost 300 basis points and was last near these levels in 2003.
Jobless Claims
Labor Department figure shows initial jobless claims fell by 22,000 to 432,000 in the week ended Dec 26, the lowest level since July 2008.
Home Sales
Existing home sales rose in October by 10.1%, new home sales rose a better than expected 6.2%, pending home sales rose 3.7%. Although these improvements could be temporary as 30% of the sales were to first-time home buyers who were assisted by the $8,000 tax rebate program, the program has now been extended into next spring, and expanded to include some folks who are not first time buyers.
Consumer Confidence
The Conference Board, a New York-based research group, said its consumer confidence index rose to 52.9 in December.
Conclusion
However, US consumers are not likely to return to pre-crisis level spending. Various time bombs such as sovereign defaults, commercial real estate implosion looms. Further, the recovery so far is supported by massive government stimulus and liquidity injections. The Federal Reserve blew bubbles to get the economy out of the recession in 2003. They are doing it again this time, but on a bigger scale. Finally, US debt is likely unsustainable. There may be signs of recovery, and recent signs have gotten more credible. In many ways the recovery in the economy and the equities market are similar to the recovery in 2003. But the recovery, without solid fundamentals, is likely a fake recovery, one that could give way to a bigger crisis some time down the road.
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