According to Tom Higgins, chief economist at global asset manager Payden & Rygel, while speaking during a conference call in late September, "If you look at a variety of indicators, some of the leading index data-specifically things like the Treasury yield spread and the money supply growth (M2), stock prices, new orders for durable goods, weekly hours, building permits-all are up."

The question is whether these numbers will stay up. Higgins suggests there are only two legs on the stool holding up the economy now: net exports trade and federal spending. And the latter is not much of a leg at all. (Indeed, the Bureau of Economic Analysis says much of the GDP boost came from the now-moribund "Cash For Clunkers" program.) Higgins says his team would rather see support for GDP growth come from other places.

"Over the next year," he said, "what we'll see is the government's going to be spending on the order of $100 billion a quarter to prop up the economy, but really you need to see these other components-consumer spending, housing investments, business investment, really come on in order to sustain the recovery. We think they will."

One obstacle in the new world order is consumers' new virtuous habits. Consumer savings rates, usually one of the less tremulous market indicators, have skyrocketed over the last couple of years from less than zero during the housing boom to almost 6.9% in May 2009. You don't need a Zen rock garden to see a sign of the times: People have begun hoarding money again in ways they didn't in the salad days of easy money. A couple of years after the housing crisis, they no longer think they can use their houses as ATMs or retirement chests, nor wave credit cards like magic wands to make financial emergencies disappear. Nor are they the same sorts of consumers who would buy a new cell phone every six months or a new car or a TV set if the one they've got works.
"We've become Wal-Mart-ized," says Jordan. "Why should I buy it from you when I know I can wait you out and wait a month and then you'll have to cut the price and put it on sale?"

In other words, after 25 years of overborrowing and overconsuming, undersaving and underinvesting, people are adjusting their debt to equity ratios, and that's a long painful hangover for growth.

Savings rates will "probably stay fairly high, and they should for a number of very good reasons," says Karl Mills, the president and CIO of Jurika Mills & Keifer Investment Advisors in Oakland, Calif. "One is that a lot of the economy rides on the backs of the baby boomers, and they're finishing their peak borrowing and spending years."

CNBC economist Marci Rossell speaking at the FPA's Anaheim symposium in October, said she thinks all this higher saving is not a bad thing in the long run. "The trajectory for our economy might look different," she said at the FPA meet, "but it could look different in a way that is less volatile. You might have fewer ups and downs. The highs might not be as high, but I suspect that the lows might not be so low if you come into an economy where people year in and year out are saving 5%, 6%, 7% of their income instead of zero."

Companies Tanked Up For A Rebound
Mirroring the consumer behavior, corporations have also become more virtuous. Non-financial companies have sliced costs and grown cash-fat, holding a record amount of it on their balance sheets. The Wall Street Journal reported in early November that 500 of the largest non-financial companies were holding almost $1 trillion in cash and short-term investments, or 9.8% of their assets, up from 7.9% the year before. This defensive posture by U.S. companies and their cost-cutting amid falling prices is another thing that has primed businesses for recovery, analysts say.

"Corporations have the most cash on hand according to the flow of funds data from the Federal Reserve than they've had in the last 50 years," says Higgins. "So when it comes to the point when consumer spending stabilizes and businesses begin to invest again, you can foresee that businesses have plenty of cash on hand in order to hire more people-in order to invest in technology and to begin that positive cycle upward. So there's good reason to be optimistic from the corporate perspective."

"CFOs get cranky when that cash is sitting there," says LPL economist Canally. "So companies can spend it on acquisitions, they can do buybacks, they can increase their dividends, they can do more hiring and increase production. That cash is going to get deployed somehow, so that will be good fuel for growth for capital spending."