Economy lifts off runway but not out of woods yet

ON THE US

Americans have lost some of their optimism and boldness about the future and their financial security. But they have not stopped spending. Retail sales and car purchases are stronger than at this time a year ago.

Soft data (surveys and confidence polls) are down, but hard data indicate the business cycle is not ending, as industrial production, capacity utilisation, exports, and inflation all point modestly upward. At the same time, yields on AAA- and AA-rated bonds are near record lows, an indication of fear and distress in the system. Credit markets are functioning, but credit spreads are showing the risks of default have risen. The stock market has moved sharply down over the summer but has not fallen as much as is typically seen at the outset of a recession. Companies continue to reduce de...