Last Friday we reported on the sovereign debt problem well before the market panicked over it.

Yesterday's panic reaction was NOT about the state of our economy. The indications of economic progress are still on track.

For example, these two recent headlines point to improvements showing up ...

January 29, 2010: Michigan Consumer Sentiment Highest in Two Years
February 1, 2010: ISM Manufacturing Index Reaches Highest Since 2004

The employment picture has also been improving as seen in the next two charts.

Improving: Nonfarm Payrolls ...

Although not positive yet, this chart shows a clear trend change with improving conditions since last January. See the next chart ...

Improving: Civilian Unemployment Rate ...

While nonfarm payrolls have been improving, unemployment rates haven't shown the same amount of progress.

Here again, this chart does show improvement because the Unemployment Rate is not getting worse, and December was a small improvement over October. This morning's announcement stated that the Unemployment Rate dipped to 9.7% ... more improvement. See the next chart ...

Improving: Consumer Attitudes and Spending ...

(The RBC Cash Index: http://www.rbc.com/newsroom/rbc-cash-index.html)

From a long term perspective, this chart is still telling an important story of progress. This monthly chart measures Consumer Attitudes and Spending, a study done by RBC at the beginning of every month.

What do you see on this chart that is of technical importance?

First, you should notice how the Bear market ended. The blue trend line was broken to the upside signaling a positive change in consumer attitudes and spending. That marked the bottom of the Bear market.

Second, you should notice what has happened since the resistance level was broken to the upside. Look at the arrows and what do you see?

The answer is higher/highs and higher/lows ... the definition of an up trend. And that is what it takes for the economy to improve. Yes, the most recent tick is down so far, but that is consistent with the higher/lows that have been made. So, at this point, the improvement in consumer attitudes and spending has not abated. Yesterday's panic reaction to the sovereign debt problem is a different issue. Unless the problem is FAR worse than anyone is reporting, the markets will over-react and go back to normalcy.