[Mavdog]

good news on the economic front...apparently the policies of the current administration are making headway in turning around the recession.
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JULY 21, 2009 Leading Indicators Signal Recovery Likely in 2nd Half
By GREG ROBB | MarketWatch
WASHINGTON -- The U.S. index of leading economic indicators rose 0.7% in June, the third straight monthly gain, the Conference Board said Monday, signaling that a recovery is likely in the second half of the year.

Over the past six months, the index has improved at a 4.1% annual rate, up sharply from a negative 6.2% rate in the prior six months. This is the fastest pace since the first quarter of 2006.

The trend is consistent with a slow recovery this autumn, according to Ken Goldstein, an economist at the Conference Board.

"The unqualified jump in the index holds out hope that the upturn is not far away," said Joel Naroff, president of Naroff Economic Advisors.

The gain in the index was in line with estimates of Wall Street economists, according to a survey conducted by MarketWatch.

Seven of the 10 indicators increased in June. The positive contributors -- beginning with the largest positive contributor -- were interest-rate spread, building permits, stock prices, weekly initial claims, average weekly manufacturing hours, index of supplier deliveries, and manufacturers' new orders for consumer goods and materials.

The negative contributors were real money supply, manufacturers' new orders for nondefense capital goods, and index of consumer expectations.

The coincident index fell 0.2% in June on continued weakness in employment and production. That suggests second-quarter economic activity is likely to be negative. The lagging index fell 0.7% in the month.

"All in all, the behavior of the composite indexes suggests that the recession will continue to ease and that the economy may begin to recover in the near term," the Conference Board said.

"The critical question is what is next," said Josh Shapiro, chief U.S. economist at MFR Inc. "Our feeling is that the data will start to flatten out, indicating an elongated trough for the economy. We'll know in the next several months whether this is an accurate assessment of the situation."

The severe U.S. recession is slowly abating, but most companies are still cutting costs, and few have immediate plans to hire more workers or increase their capital spending, according to a quarterly survey released Monday in Washington by the National Association for Business Economics.
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Fed's Lending Ebbs as Crisis Subsides

By SUDEEP REDDY and ANUSHA SHRIVASTAVA
Demand for the Federal Reserve's emergency short-term lending programs is abating, the latest sign that credit markets are healing.

Borrowing through a program the Fed launched to support the market for commercial paper, short-term corporate IOUs, is at less than one-third its peak level. Securities dealers and investment banks haven't used a Fed borrowing program, launched amid Bear Stearns woes in March 2008, for 10 weeks. Overseas central banks borrowing of dollars from the Fed is running less than a fifth of its $583 billion peak.

Meanwhile, a Fed facility that allows securities firms to trade hard-to-sell collateral for Treasury debt showed just $4 billion in volume recently, down from more than $235 billion in October. And the program through which the Fed auctions to banks is down almost 45% from March.

"The Fed has been able to shift the dominoes in the other direction by very aggressive liquidity policies," said Michael Darda, chief economist at MKM Partners, a trading and research firm. "Now you have these emergency liquidity programs rolling off as these markets improve."

The Fed's overall balance sheet -- the total of all its loans and securities holdings -- stood at $2.06 trillion for the week ended Wednesday, below the $2.3 trillion peak reached last fall, though it grew from $1.98 trillion a week earlier. When Fed officials met in late June, Fed staff said the size of the balance sheet "might peak late this year and decline gradually thereafter," according to minutes released recently.

The Fed has purchased only about half the up to $1.75 trillion in Treasury long-term debt, mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac that it said it may buy. It also is expected to lend more through a joint initiative with the Treasury Department to revive the market in which consumer and business loans are turned into securities, an effort to make credit more widely available.

Since the credit crisis began almost two years ago, the Fed has gone well beyond its traditional lending to commercial banks and launched a dizzying set of programs, each with its own acronym, that has it lending to such big financial firms as American International Group Inc. and even, indirectly, to industrial companies through the commercial-paper market. At its peak, the Fed was one of the biggest holders of commercial paper -- $350 billion, or 20% of the market. Commercial-paper holdings in that program are down to $111 billion and fell by $1.84 billion in the week ended Wednesday.

The program gave investors comfort, when liquidity was strained last fall, that issuers could access the Fed facility as a backstop, said Chris Conetta, head of U.S. commercial-paper trading at Barclays Capital. "It allowed cooler heads to prevail and gave time for other programs to develop … where companies could get longer-term debt."

The vast majority of commercial paper being purchased was issued by non-U.S. banks, and many of those issuers ultimately received guarantees from their governments, Mr. Conetta said. Now he expects the program to end in February unless the market changes substantially.

Although credit-market conditions are improving, they aren't -- and may not for a long time -- returning to precrisis levels. Borrowing is expected to remain restrained in the coming years as households reduce debt and lenders display more caution in their standards, said David Resler, chief economist at Nomura Securities. "Greater discretion of who they lend to is a healthy sign," he said. "Indiscriminate borrowing and lending is what got us into this mess."

The Fed is still ramping up its initiative to revive securitization of consumer and business loans, the Term Asset-Backed Securities Loan Facility. Loans in this program expanded to $30.1 billion in the week ended Wednesday from $24.9 billion a week earlier. At the height of the credit crisis, no one wanted to buy bonds backed by auto, student and credit-card loans as investors feared these bonds would perform as poorly as their cousins in the home-loan sector.

Now that it is apparent these securities aren't in danger of wholesale ratings downgrades, long-term investors such as insurance companies and pension funds are returning. But the consumer-loan market isn't as healthy as it once was: Issuance is at half the level it was at this time last year. While the auto and credit-card sectors are seeing a rebound, there hasn't been a similar surge in other areas like equipment-backed deals.

That means the securitization market, while on the mend, still needs Fed crutches -- and may need them well past the program's scheduled expiration at the end of this year.