This is it?

A notably more shabby-chic Cinderella will be attending a significantly budget-reduced and cash strapped ball this March. The darling underdog recovery story that is the US economy (which produced nearly 6% GDP rate in 4Q of 2009) is attempting to maintain the shimmer that ended 2009 with robust rebounds in manufacturing, productivity, unemployment declines and even consumer spending. However, while early 2010 figures appear to keep this trend in tact, the momentum of the grand carriage appears to be flirting with midnight-esque trouble and runs the risk of morphing into a much less appealing sight. As midnight approaches and the stimulus effects begin to wane or become more and more reduced (including Fed support actions such as mortgage purchases to the tune of 1.25 trillion dollars ending in 2 weeks), it remains to be seen how the US economy will fair.

At the end of 2009, the recovery story was thriving - unemployment had stabilized with projections of job creation as early as 1Q 2010; manufacturing contributed strongly to GDP growth as a rebound in inventory orders and productivity gains also enhanced corporate profitability leading into the earnings season of 1Q 2010; housing appeared to have stabilized with some markets actually showing decent quarter-over-quarter gains.

But as 2010 has begun (and this being while the stimulus effects are still at their relative peak!), new data has created some cause for concern - weekly jobless claims began to increase again (albeit due to some seasonal and extenuating factors) but more importantly continue to stubbornly remaining in the 450,000/wk level, as opposed to the 350,000 level needed for job creation; job creation may be seen finally in March 2010 but this will likely only be due to the hiring of census workers (a temporary boost); manufacturing orders that once rebounded have now stabilized at this minimal growth level; inventories remain at low levels across businesses, wholesale, and retail; and housing has begun to show effects of softness with housing starts and sales both declining decently and potentially showing that the 2009 tax credit merely stole future demand from 2010.

It's a minimal growth economy that may encourage the Fed to leave its rates at 0% for all of 2010 (current expectations show a rate hike in 3-6 months), which may in turn support commodity driven rallys and corporate profitability. However, these cyclical winds would only mask the structural weakness the underlies. The patchwork of Congress' recent $150 billion stimulus bill may just keep the current pace afloat. But again, at what cost? Afterall, the fancy dress and grandious ball weren't the reality. Cinderella as a princess was an illusion. And the longer the illusion goes on, the longer the supportive Fed measures exist and encourage inflation, financial innovation, asset bubbles or the like, then the harder the landing and the harder it is to explain once reality sets back in.

For the sake of Cinderella, the US economy, basketball lovers, and all those average Joe the Plumbers that exist, let's hope that the 2009 stimulus shoe fits and that it wasn't all for naught - because I'm not sure America can afford the pair.