It's the same today. There are whole new technologies and industries that are going to be created in the next decade. Entrepreneurs will respond with new innovations and businesses. Jobs that are not now on the horizon will spring up.

As a society, we're having to work through the excesses of a lifestyle that was propped up by ever-increasing debt and an out-of-control consumerism. That will happen in the fullness of time. But it will take time, and we need to adjust our expectations to account for that.

Over the next few weeks, I'm going to drill down into the data to show why recovery will take longer and to help you withstand what will be an onslaught of out-of-control bullishness over data that's not so much good as "less bad." Let's start with a few easy targets.

The 3 Amigos

Earlier in my career, I wrote about the "3 amigos" -- 3 indicators of the economy's direction: capacity utilization, high-yield bonds, and the (renamed) ISM numbers. Watching the direction they're moving gives you a good idea of where the economy's headed.

We saw above that capacity utilization is still in a cliff dive. For there to be an actual recovery, we need to see capacity utilization start to climb back up. That's not currently a very positive indicator.

Credit Spreads --  Bullish or Bearish?

A number of commentators have been effusive about how credit spreads have "come back in." Indeed, junk-bond yields have fallen, which is a good thing. Look at the graph below (courtesy of Tony Boehk).

                                   
Click to Enlarge.

Note that yields have simply come down to levels associated with recessions, and not with actual recovery. Last year, Armageddon was priced in to junk-bond yields. Now, only recession and slow recovery are priced into them. Could they improve more? Certainly. But the easy lifting is done. The direction is right. Let's see how they do the next few months. If those yields keep falling, that would be a very positive sign.

Institute for Supply Management -- Is Less Bad That Good?

The Institute for Supply Management (ISM) released their data for May, and again commentators were enthusiastic about the increase in the manufacturing index. Stories of Green shoots and other wonderful signs were all over the media.

The ISM is a survey of manufacturers about how their businesses are doing. They're surveyed on 10 criteria, lsuch as new orders, employment, inventories, backlog of orders, and so on.

From these responses the ISM creates an index. An index number above 50 means that the manufacturing sector is growing, and below 50 means it's shrinking. At the website above, you can get quite a bit of detail. It's quite true that we've come back from the lowest overall index number in 30 years. But we're simply back to the lowest level in the previous 2 recessions. The ISM number is "less bad" and that's a good thing, but it's still a bad number. It's headed in the right direction. Let's look at the actual chart.

                                  
Click to Enlarge.

Of course, as businesses adjust to the new normal, whatever that level is, year-over-year comparisons will start to be positive. Simplistically, if a business makes 500 widgets a month and sales fall to 300, they will likely report falling production and rising inventories. Over time, inventories will finally settle out as management adjusts, and at some point inventories and production will hopefully start to rise. This gets reported as positive. The actual numbers may be down from the peak, but the direction of the company is, once again, on a positive slope.

When you look at the actual numbers comprising the release, the manufacturing part of the US economy is still contracting. Is it less bad than a few quarters ago? Yes, but it's still bad. The recent number is only slightly higher than the average for the last 12 months. We need this number to be above 50 to talk about an actual recovery in the here and now, as opposed to the future.

Contain Your Enthusiasm

Shipping containers moving into US ports rose by 2% in April, from March. That was cause for celebration in some circles. Buried way down, if mentioned at all, was the fact that, compared to a year ago, shipping is down 22%. And year-over-year comparisons have been worse for 22 months in a row. At some point, you get to a bottom. We find the new normal. But if the new normal is down 20%, that's a different-looking economy.

Here's something to think about from Dennis Gartman:

"According to the data reported out by the International Air Transport Association, after having touched just barely under $60 billion in '07 and '08, this year the IATA 'guesstimates' that only $40-$42 billion will move into the US.

"We are effectively back to the levels of '00-'04 and we are well below anything since '05.

Welcome to the new normal. It's a quite distinctively different world from that of 2006. Global trade is off 10%, and there's outright deflation in many places.

When it comes to thinking "This time, it's different," human nature hasn't changed. We're still driven by fear and greed. The business cycle hasn't been repealed. Free-market capitalism will get us back (with a few new rules of engagement). What's different will be the nature of this recovery. All the other eternal truths will remain.