"Most economic indicators suggest that we should be in recovery during the second half of 2009."

It is exciting time for my wife and I as we are expecting a baby girl in July. The doctor continues to reassure us that everything is ok by saying something similar to: “After my examination, all indications suggest that you should be having a healthy baby come July.” When the same doctor questions me about how the economy is doing, I repeat strikingly similar words: “After my examination, most economic indicators suggest that we should be in recovery during the second half of 2009.”

When trying to predict the future, both the medical doctor and economist rely on indicators, history, and their own intuition as to what might happen this time. That being said, here are a few indicators that I currently follow that help provide useful and predictive information about how the economy is doing. They are suggesting recovery:

1. Consumer sentiment: this 19 month recession is based on fear. Animal spirits and human psychology play a significant role in the daily operations of our economy. Both consumer confidence and consumer sentiment (while still below average) have come off their bottoms and continue to move up.

2. Fear Index: similar to (1) above, fear has left the left the financial markets. The VIX index (so-called fear index) has nearly returned to normal.

3. Yield curve: is the difference between the yield on the 10-year treasury and the Federal Funds rate. This indicator remains steeply positive suggesting normalization of risk and an upcoming recovery.

While there are many additional variables to follow (e.g. Alan Greenspan is said to have followed several thousand different indicators), I am encouraged by what I am seeing. Keep in mind however that this recovery is likely to be weak for a variety of reasons (including de-globalization and the burdensome fiscal deficits) and job growth probably will not appear until sometime in 2010.