Risk aversion returned to markets on Thursday, supporting the U.S. dollar and government bonds, after mixed economic data, while concern about the possible failure of a small U.S. lender sparked caution following the week’s robust gains in stocks.

Oil hovered around $61 a barrel as worry about the strength of global fuel demand was offset by news of strong economic growth in China.

The U.S. dollar initially fell to a six-week low against major currencies after JPMorgan’s reported record investment banking and trading results, providing further evidence of recovery in the financial system, but weak U.S. manufacturing data and concern about the impact of the possible failure of U.S. lender CIT re-introduced a bid for safer-assets.

CIT’s talks about aid with the U.S. Treasury ended Wednesday night, leaving the lender to its own devices, and endangering the future of some of the one million customers of the lender to small businesses. U.S. Treasury debt

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Some good news, some bad, in the indicators we follow this week.

First, the bad news. Monthly sales for retail and food services, which had been up a bit in January and February, fell 1.1% on a seasonally adjusted basis between February and March, leaving the first quarter 8.8% below 2008:Q1. That's a particularly discouraging development, since given the cyclical behavior of the other components of GDP, it's hard to envision a recovery without an upswing in consumer spending.

Source: FRED.

On the other hand, new claims for unemployment compensation were reported today to have fallen by 53,000 in the week ending April 11, bringing the 4-week average down by 8,500 from what the revised numbers show to have been the recent peak the week before. If April 4 ultimately proves to be the peak for the

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A lot of people have seen this picture of the recent behavior of the monetary base and wondered what it means.

Figure 1. Adjusted monetary base. Source: FRED.

To understand the explosion in the monetary base since September, let's begin with a little background. The Federal Reserve has the ability to purchase assets or make loans with funds (money) that are created by the Fed itself. To buy a billion dollars worth of assets, the Fed doesn't show up with new cash in a wheelbarrow. Instead the Fed pays for any assets it purchases or loans it extends by crediting the funds that the recipient bank has in an account with the Fed, known as reserve deposits. A bank can later withdraw those deposits in the form of green currency, if it chooses, and that's the point

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Survey; U.S. began recession in April; Target 3Q Profit Down 24%; Merrill Lowers 2009 Brazil Growth to 2.9%; Hong Kong Officially in Recession; SEC Charges Cuban with Insider Trading; Lowe’s Revenue Climbs; October Industrial Output Rises

The U.S. economy entered recession in April and will last a total of 14 months, according to a survey of economists by the Federal Reserve Bank of Philadelphia. The survey also predicted that non-farm payrolls would contract by 222,400 jobs during the fourth quarter, Reuters reported. Target Corp. (TGT) saw its profit drop by 24% in the third quarter, as fewer shoppers showed up at the retailer. Though slightly better than the average forecast, it marked the fifth consecutive drop in quarterly profit, Reuters reported. Merrill Lynch lowered its 2009 growth estimate for Brazil from 3.1% to 2.9%. ...