If not for the turmoil of Greek bailouts and computer glitch induced stock market bunge jumps the economic reports last week would have been big news. The stock market may or may not be telling us something about future economic activity but it can’t be denied that current activity continues to accelerate to the upside. Led by manufacturing the US economy is in a full blown economic recovery.

The ISM manufacturing report on Monday showed the sector continuing to accelerate. The composite index hit a 6 year high and the new orders index rose to 65.7, the tenth straight month of expansion. The employment index also hit a 6 year high at 58.5. One disturbing trend is prices which hit 78 as deliveries slowed and backlogs built. With little ability to pass along price increases, companies will be forced to either become more efficient or take the hit on the bottom line.

The income and spending report showed gains in both but spending gains are outpacing income gains. The personal savings rate dropped again to 2.7%. Savings is future growth so while things look good for now, the future looks a little dimmer every time the savings rate dips. I guess with gold rising on a daily basis I shouldn’t be suprised that people are reluctant to hold onto paper dollars. Construction spending was up in March but still weak on a year over year basis (-12.3%). With overcapacity just about everywhere, that doesn’t look to change anytime soon.

Redbook retail sales were a bit weak showing a month to month drop of 2.2%. Some of that is due to timing of Easter but the momentum does seem to be waning a bit. The chain store sales reports on Thursday confirmed the drop off from March but Easter sales were so good that taking March and April together gives a pretty solid picture of spending.

Factory orders rose 1.3% in March but the underlying strenght was better than the headline. Durable orders ex transportation were up 3.1% the best reading in nearly 5 years. Shipments were up 2.2% including a second straight month of strenght for non defense capital goods which is a good early sign of business investment. Overall, a very strong report.

Pending home sales were up strongly in March as expected as buyers rushed to capture the home buyer’s tax credit. Sales were up 21.1% year over year but seem likely to fall back as the extra government cash comes to an end. Jobless claims inched down again last week to 444k. Still not falling fast enough. Productivity was higher in the first quarter by 3.6% a deceleration from the fourth quarter but still solidly higher. Unit labor costs fell by 1.6% which should help future hiring.

The big report of the week was the employment report which was almost ignored with all the attention on Europe. Payrolls expanded by 290,000 jobs according to the establishment report and 550,000 if the household survey is to be believed. The unemployment rate rose to 9.9% as the workforce rose by 805,000. That’s actually good news as it indicates that people see enough hope to come back and start looking for a job again. The unemployment rate will probably stay high even as we add jobs because of this effect. The strength in the report was widespread and previous months were revised higher. Overall a very strong report but I wonder how long it will last if jobless claims don’t start falling pretty rapidly.

Stock markets took it on the chin last week with the US market falling by roughly 6%. That wasn’t bad compared to Europe where several markets managed double digit declines on the week. While the correction wasn’t unexpected in these quarters the rapidity of the decline, especially the roller coaster on Thursday, was a bit shocking. We still don’t know exactly what happened to send the Dow down 1000 points intraday on Thursday, but it seems more likely as the days go by that it wasn’t some fat finger error. The fact is that a lot of stock hit the market for sale and there weren’t any buyers. The HFT firms that have justified their existence by pointing to the liquidity they provide the markets were nowhere to be found and the NYSE guys were slow to step into the void. Fast markets and slow people combined to produce an air pocket beneath the market that gave even the crustiest of traders a moment of mild panic.

The big question for investors – as opposed to traders – is whether this is just a correction or the beginning of something more. If it is a correction, it is likely about over; if it reflects something more fundamental, it could just be the beginning. The fundamental economic backdrop at this point would seem to point to the former explanation but that is far from certain. One thing seems certain – the rally that we were enjoying just a week ago was a lot more fragile than most thought.