Turning Unassisted

Recovery: Don't look now, but the economy is starting to turn. Recent data suggest it may start making up lost ground as early as the third quarter. A triumph of government policy? Hardly.

The economy's hard take-down last year was due almost entirely to a longstanding government policy that forced banks to lend to unworthy borrowers plus missteps in Fed interest-rate policy.

The combination of soaring oil prices, bad mortgages, a collapsing housing market and rising interest rates crushed much of our financial infrastructure, causing mass bankruptcies, layoffs and a financial crisis that hammered economies around the globe.

But now, after months of seemingly nonstop bad news, there are hopeful signs on the horizon. They include:

• A broad rally in stocks, confirmed last Thursday, continuing into this week and led by the beaten-down financials.

• A surprising 22% surge in February housing starts to a seasonally adjusted annual rate of 583,000 units.

• A back-to-back jump in retail sales ex autos, in both January and February.

• A return to profitability at several major banks, including Citigroup, Bank of America and JPMorgan.

• A doubling in the obscure but important Baltic Dry Index, a key indicator of global trade flows.

• An upwardly sloping yield curve, which Fed research suggests all but ensures a rebound by year-end.

• A Housing Affordability Index that has hit an all-time high.

• A two-month improvement in wholesale used-car prices, measured by the Manheim Index.

• A rise in Monster's Employment Index in February, suggesting a turn in the job market may be around the corner.

• A 4 1/2-year high in the dollar against other major currencies, on a trade-weighted basis.

• A sharp increase in the money supply, as measured by M2 and M1. Weekly M2 growth has averaged 10.1% year-over-year since the start of 2009, while M1 has grown at a 14.6% rate.

• A two-month rally in the Index of Leading Indicators.

• A growing body of evidence that the "liquidity crunch" is dead. Data show nearly $14 trillion in liquidity on the sidelines of the markets, ready to boost consumer spending, credit growth or further stock market gains.

This list could go on, but you get the general idea: Below the surface of gloom, there are signs of a new vibrancy. …