Confidence is up, but it's still very low

"Consumer confidence in U.S. reaches highest level in more than four years," reads the headline today. But as this chart shows, confidence is still very low; it's about as low as it was during the recessions of 1990-91 and 1980-82. But of course it's the change on the margin which is important, and that change is positive. Things are improving, even though the economy is still miserably weak.

Meanwhile, capital goods orders—a proxy for business investment—are down over 6% this year, although they have stabilized and even increased a bit in the past four months. This underscores the fact that the economy is weak, but it's not collapsing. A recession is not inevitable. Taken together, these charts also are consistent with the view that the strength in the equity market is not being driven by optimism, but rather by a gradual decline in pessimism.