Bond investors are no doubt breathing a sigh of relief. Now that investors are waking up to the fact that a recovery is not “around the corner” after all, the yield on 10-year T-Notes is dropping and bond prices are rising again.

As long as investors have an appetite for low-yielding Treasurys (10-year Notes were yielding 3.53% yesterday), the government will have a tough time pushing its “green shoots” fairytale.

We challenge even the best paid of President Obama’s economic spin doctors to find the silver lining in the following two recent data points. This from MoneyMorning.com:

1. Unemployment claims unexpectedly rose yesterday, as the number of US workers filing new claims jumped by 15,000 in the week ended June 20 to a seasonally adjusted 627,000, the Labor Department reported. The four-week moving average of initial claims, a less volatile measure, rose to 617,250 from 616,750, signaling the US job market is stagnant.
2. US gross domestic product (GDP) contracted at a 5.5% annual rate in the first quarter after plunging at a 6.3% pace in the fourth quarter of 2008, the Commerce Department said yesterday (Thursday). That means the US economy just went through its worst eight-month period in more than 60 years, according to MarketWatch. The government last month estimated GDP fell at a 5.7% pace in the quarter ended March 31.

If you in any doubt about the dangers of relying on the mainstream media for your economic and financial information, here’s how the BBC, Britain’s state-sponsored news agency, had this to say about the worst eight-month contraction of the US economy in more than 60 years.

US economy better than expected

The US economy shrank at an annualised rate of 5.5% in the first three months of 2009, better than previously thought, government figures show.

This is pitiful. And it’s clear evidence that governments and mainstream media outlets really do believe that people are too stupid to notice what’s going on in the economy. Don’t be suckered. This kind of nonsense is dangerous: listen to it and you could get wiped out as an investor.

If you want to know why the economy is in the ditch… and ain’t “bouncing back” anytime soon, look no further than this chart. It shows the total level of equity in household real estate from 1952 to 2009. (Hat tip, The Big Picture.)

The good news came in spite of a small jump in initial applications for state unemployment insurance, which rose by a more-than-expected 3,000 to 608,000 in the week ended June 13. Analysts polled byReuters were expecting claims to dip to 600,000 from a previously reported 601,000.

But analysts were largely focused on a trend in continuing claims, which tracks jobless workers who stayed on government benefit rolls.

Those claims plunged by 148,000 to a smaller-than-anticipated 6.69 million in the week ended June 6, the latest week for which data was available. That is the lowest number since May 9, and the largest one-week drop since November 2001, Reuters reported.

And in another sign the labor market may be thawing, the closely watched four-week moving average for new claims, which smoothes out short-term volatility, shrank to 615,750, the least since February 14.

The drop also halts a streak of 21 straight increases in continuing claims, including 19 that were records.

“The labor market remains weak but it’s starting to stabilize,” Maxwell Clarke, chief U.S. economist at IDEAglobal in New York told Bloomberg News. “An improvement in employment conditions and improvement in confidence go hand in hand with an improvement in consumer spending.”

Still others heralded the news as a harbinger of a recovery in the overall economy.

“Overall, we judge this report as another among a growing number of signs [however tentative] that the economy is beginning to stabilize,” Nomura Holdings Inc. (NYSE: NMR) economist Zach Pandl, wrote in a research note to investors, The Wall Street Journal reported.

After companies made deep job cuts earlier this year, the drop in claims is a welcome change for weary jobseekers battered by the recession.  Companies have slashed more than 6 million jobs since the recession began in December 2007.

Of course, the statistics don’t reveal whether workers on government rolls are successfully finding new jobs or dropping off because their benefits have simply run out after the normal allotment of 26 weeks.

Any drop in continuing jobless claims might be reflecting only the drop in initial claims, as fewer people join the rolls.

“It is unlikely that new hiring has picked up in any meaningful fashion,” Joshua Shapiro, chief economist with MFR Inc., a consulting firm, wrote in a note to clients, the Associated Press reported. “More probable is that long-term unemployed are starting to fall off the rolls.”

And the likelihood of significant hiring as the economy recovers remains in doubt.

As reported in Money Morning last week, U.S. Federal Reserve Bank Chairman Ben S. Bernanke threw cold water on hope for a full-blown economic rebound when he hinted recently that the U.S. labor market could well be facing a jobless recovery – an upturn in which the economy and corporate profits advance, but virtually no new jobs are created to compensate for years of layoffs.

The bankruptcies of General Motors Corp. (OTC: GMGMQ) and Chrysler LLC are likely to directly throw at least 32,000 more workers out of work in the coming summer months. And countless others at parts supply companies and other auto-related businesses may soon follow.

Nevertheless, a further reduction in continuing claims might be enough for some economists to call the recession over.

Bruce Kasman, chief economist at JPMorgan Chase & Co. (NYSE: JPM), said that a drop in the four-week average to 580,000 by next month would be sufficient to declare the recession over, according to theAssociated Press.

Kasman is chairman of the American Bankers Association’s economic advisory committee, a group of economists for large banks that this week predicted the economy will recover in the third quarter.

Source: Drop in Continuing Unemployment Claims Could Signal Onset of Recovery

The Commerce Department reported that retail sales rose by a surprising 1.0% in May, the best increase in six months. Excluding autos, sales rose 1.2%. Economists’ expectations had been for a 0.6% rise in total sales, 0.8% excluding autos.

That report was “serious and raises risks of earlier and more pronounced rate hikes” from the Federal Reserve, wrote Stephen Gallagher, economist for Société Générale.

The strong retail sales figures were shocking in that they show that consumers are continuing to shop, in the face of the lowest consumer confidence figures in decades. Where they’re getting the money is an open question, although it’s possible that the rebate checks are playing in.

Consumer spending projects to 2% annualized growth for the second quarter, and that would be enough to keep the economy “safely away from negative growth,” Gallagher said.

Traders shrugged off a more distressing report from the Labor Department showing that initial claims for jobless benefits rose by 25,000 last week, to 384,000. Continuing unemployment claims gained 58,000, pushing the number up to 3.14 million for the week ending May 31. That was the highest level since early February 2004.

Meanwhile, the euro weakened after European Central Bank executive board member Juergen Stark said the ECB isn’t planning a “series” of interest-rate hikes beyond July. Earlier remarks by ECB President Trichet had raised hopes of just such a sequence.

Source: Dollar Rallies on Sales Surprise - Euro Undercut on ECB Comments

During the great credit crisis of 2007, Home Depot led America’s “consumer sensitive” stocks off a cliff. Shares in America’s largest home retailer fell from $40 to $25 in just seven months. But despite horrible housing headlines, the Depot has refused to break its January low.

We don’t know if the worst is over for the U.S. economy. But we can look to stocks like Home Depot for clues on how things will turn out. Home Depot lives and dies by America’s ability to spend money on roofing, room additions, and lawn supplies. If folks aren’t spending money on the American dream, we’re in trouble. Unemployment claims are likely to keep rising, and housing numbers are likely to keep sinking. But stocks tend to look six to 12 months ahead and price themselves accordingly. Right now, Home Depot is casting its ballot with the “things aren’t so bad” camp.