Is economy better than it seems?

Related topics: economy, stock market, emerging markets, DuPont, Jim Jubak

There's good reason to suspect that the rally that began Sept. 1 is going to peter out. From 1,049 at the close on Aug. 31, the Standard & Poor's 500 Index ($INX) had climbed 5.7% by the end of last week.

But after starting with a bang, stocks seem to be struggling as they move closer to the top of the recent trading range, near 1,130 for the S & P 500.

It's hard to imagine that stocks are going to break out of their trading range now and stage a significant rally when the U.S. economy's macro numbers -- on everything from jobs to consumer debt -- are just so bad. How can we get a stock market rally when even the Federal Reserve's most recent comments on the U.S. economy indicate growth is decelerating?

But what if the macro numbers, the data that we all hang on, are giving an inaccurate picture of the economy? What if the U.S. economy isn't growing as fast as China's or India's or Brazil's range of 8% to 10%, but also isn't growing as slowly as 2% or headed for 1%?

I think it's at least worth considering the possibility that the U.S. economy is stronger than the headline economic numbers now suggest. And that raises the odds that this rally could actually take us above the top of the trading range.

That wouldn't mean investors were facing something like a replay of the rally that started in March 2009. But it would raise the odds that we're going to start to see stocks start to work higher with a traditional pattern of higher lows and higher highs.

Am I nuts? Or, assuming my sanity is intact, am I just plain wrong?

First, the bad news

Let's face it, the macro evidence that the U.S. economy stinks and is getting smellier is pretty strong.

How bad is it?

• Unemployment climbed to 9.6% in August from 9.5% in July.
• Personal income inched ahead by only 0.2% in July.
• Orders for durable goods, not counting volatile transportation orders, fell 3.8% in July.
• Housing starts for single-family homes fell in July for a third consecutive month.
• Sales of existing homes plunged 27% in July.
• Capacity utilization at the country's factories is expected to have barely climbed in August, to 75% from 74.8% in July. (The August number is due out Sept. 15.)
• Retail sales, excluding cars and gasoline, fell 0.1% in July.

Shall I take away the sharp objects yet?

But I'd like to point out a few features of that data that make me, if not optimistic, then less than pessimistic about the U.S. economy.

Old news

First, most of these numbers aren't just what we call trailing. They are positively ancient. They can barely crawl, because their knees are so arthritic.

Data from July, the latest available for some of these reports, tell you little about the future.

The stock market could be rising simply because it looks six months ahead instead of two months backward.

Second, the recession was so deep and lasted so long that some of the traditional causal relationships between this data series and that data series may not apply -- or, at least, might not apply with the usual chronological relationship.

For example, bad loans usually don't fall significantly until unemployment does. But in this recovery, bad loans are falling, and fast, even as unemployment remains stubbornly high. Maybe consumers are so overextended and so scared of all the debt they've piled up that they're putting extra money toward repaying debt. Maybe banks, which did such a bad job in extending these loans, are doing a much better job of managing loans that are in danger of falling behind.