Spring Blandishments

Spring's here and with it comes talk of "green shoots" and "small signs of hopes" when it comes to the economic data - February brought the second month in a row of rising retail sales and personal spending, durable goods orders were up as were existing and new home sales. And bank chiefs talked about a good start to the year for the first two months.

But it pays to remember that the on-month gains came after the economy well and truly tanked in the fourth quarter - it fell so steeply, there had to be some kind of leveling off in the pace of decline. That's no doubt a good sign; a continuation of the fourth quarter's precipitous drop across all sectors of the economy would have been highly alarming. But when things stabilize, there's still a possibility they could resume their decline - it's in no way a given that the only path from here is upward. And in a worrying sign, some bank chiefs, including JPMorgan's Jamie Dimon, are warning that March was a tough month.

The coming week brings the first inklings of this month's data in the form of the ISM's national reports on the manufacturing and non-manufacturing sectors. The headline numbers will show more stability, but it's the components such as inventories, shipments and orders - particularly export orders - that will be the most insightful. Global demand outside the U.S. has collapsed - the major export nations, from Japan to Germany to China, have all reported dire export numbers. Chinese officials believe they have averted crisis with their stimulus package and that the vital signs of their economy - such as bank lending - have improved. Germany says it has done enough to stimulate its economy and that given its high debt levels - left over from the country's reunification in the 1990s - it doesn't have the fiscal flexibility to spend more.

But demand will have to come from somewhere for the U.S. economy to start growing and not just bump along the bottom of the trough for an extended period. The domestic stimulus package is one source - but that won't come into full force until 2010. Foreign demand will take even longer to surface - China's recovery will to some degree depend on a recovery in the U.S. as one of its largest trading partners; Germany needs the rest of the world to recover so it can start exporting again, and Japan's economy remains in a blue funk. A hopefully more immediate source of demand will come from the funds that the Fed is creating and throwing by the armload at financial markets to revive gun-shy capitalist spirits and the broader economy.

Spring crocuses notwithstanding, the economic outlook continues to hang in the balance. It will take longer than one season for the rescue efforts to work their way through the economy.