A longer term perspective indicates that the US economy is making a slow recovery from the financial crisis. The chart comparing the current recession job losses to other post WWII recessions indicates that the unemployment levels are worse, but have been gradually recovering. The current recovery is much more U shaped compared to the V shaped recoveries from previous recessions.
Even the generally dismal housing data shows modest recovery in some local regions. In various cities, including San Francisco, Washington, Minneapolis, San Diego, and Los Angeles, from 7 to 14% of the homes have recovered from the post bubble lows of October 2010.
Overall, despite the disappointing quality of last week’s data releases, the longer term trends continue to indicate a continued slow recovery. Major issues remain with the government debt and budget deficits, the poor quality of the real estate mortgages held by the government, the high prices of fuel and food, the debt crisis in the European periphery countries and economic developments in China. However large these problems are, governments still have the scope for large scale solutions.From an investment perspective a cautious defensive policy remains advisable. The volatility of the market suggests that derivatives are playing a significant role in the market movements, making short term trading particularly risky. The modest economic recovery continues to support a conservative investment stance.
