It was a very busy day for economic reports, and most of them were pretty fair. Some good earnings were out, too. But after Tuesday's big move up (a lot of short squeezing), the indexes were only minimally impressed.

INDEX WRAP, WEDNESDAY, FEB. 17:

For openers, the Federal Reserve made the summary of its January closed-door meeting public Wednesday, revealing that with the economy slowly mending itself, the group was debating when to start reeling in the massive stimulus they unleashed on the economy. Some officials evidently want to start selling assets on the Fed's books "in the near future" to sop up some of the stimulus money and shrink the Fed's (embarrassing) $2.2 trillion balance sheet. Other members said No, that will drive up interest rates and hurt the economic recovery. Among those assets are mortgage securities the Fed has bought from Fannie Mae and Freddie Mac, aimed at lowering mortgage rates and bolstering the housing market. The Fed is scheduled to end $1.25 trillion worth of such purchases at the end of March but is holding the door open to extending the program if the economy weakens further.

The Fed also released a forecast Wednesday predicting unemployment will stay high over the next two years because recession-scarred Americans, both consumers and businesses, are likely to stay cautious. The Fed left rates at a record low near zero to help nurture the recovery and reduce unemployment and said they'd stay that way for an "extended period." The Fed expects the economy to grow between 2.8% and 3.5% this year, and to between 3.4% and 4.5% next year and in 2012. As it happens, to make any dent in unemployment the economy needs to grow by at least 5% a year.

All in all, no real surprises: Fed policymakers said it will take "some time" for the economy and the jobs market to get back to normal but this time several members said it might take longer than the previously-publicized five or six years. The Fed said the unemployment rate this year could hover between 9.5% and 9.7% and between 8.2% and 8.5% next year; by 2012 that will come down to between 6.6% and 7.5%. That's pretty much what it told us in November. But this time they said unemployment will remain high heading into this year's congressional elections and the presidential election in 2012. For more insights into the Fed's view of the economy and its strategy for drying up some stimulus money, stay tuned to next Wednesday's House Financial Services Committee, when Bernanke delivers the Fed's semi-annual economic report to Congress.

The Dow closed at 10,309, up 40 points or 0.39% and a sliver above resistance. At 193 million volume was okay, but lower than Tuesday. We need a breakout, and this didn't really qualify:

DOW JONES INDUSTRIAL AVERAGE:

The S&P500 almost touched resistance on not-good-enough volume.

S&P500 INDEX:

Similarly, the Nasdaq closed just above resistance at around 2,226, and on fair but not monumental volume.

NASDAQ:

It don't mean a thing if it ain't got that swing. Without volume and only nosing around resistance, "lukewarm" about sums it up.

The housing recovery is still inconclusive but mildly better than expected, according to the January starts report, with housing starts (groundbreaking for new homes) rebounding but permits falling. Starts in January bounced 2.8% after dropping 0.7% in December; the annualized rate of 591,000 units was above the market forecast for 580 thousand; that's up 21.1% year-over-year and the highest level in six months. The January comeback was led by a 9.2% increase in multifamily starts, following a healthy 12.6% jump in December; the single-family component edged up 1.5% after a 3% slide in December. The big winner for starts was the northeast; the only slippage was the Midwest, down 3.2%.

Permits dropped 4.9% in January, following December's 10.9% jump. Still, that's an annualized rate of 621,000 units, up 16.9% year-over-year, with the drop coming after two months of large increases owing to the winding down of the of the first round of first-time-buyer tax credits. In any event, significant seasonal factors and crazy weather shifts make it hard to ascertain the direction of housing during the winter, and this winter's weather has been, if anything, crazier than usual. The latest level for starts is an improvement but the fact that recent gains have been heavily weighted toward unsustainable multifamily starts is a little alarming. Single-family increases have been more modest and actually about flat on average in recent months.

Historically, housing starts have tended to follow the stock market up. This graph shows that in 2008, the time of most uncertainty in the stock market, housing prices experienced their steepest declines; later, the March 2009 price bottom and subsequent rebound in stocks coincided almost exactly with the turning point in housing.

HOME PRICES VS. STOCKS:

But starts didn’t continue to follow the stock market up, nor are they rebounding as quickly as analysts expected. Instead they haven’t done much over the last seven or eight months. And if the next graph means anything, it's unlikely that with this near-record number of vacant housing units there will be a strong rebound in housing starts. The vacancy rate has continued to climb even after housing starts began dropping. This can be attributed to a significant number of completions, to second homes ("hidden inventory") becoming available for sale or for rent, and to some households doubling up because of tough economic times.

Another correlating factor, naturally, is unemployment. In most recessions, there's been a lag of about 16 months between the bottom of single-family housing starts and the peak in unemployment. This suggests unemployment might peak this summer since housing starts bottomed in April 2009. We'll see. HOUSING STARTS VS. VACANT UNITS:

Confirming all this, last week according to the Mortgage Bankers' Association, applications for home purchases fell 4.0%, pulling down the four-week average to minus-1.2%; applications for refinancing fell 1.2%, taking that four-week average up 1.8%. The MBA now helpfully reports the percentage of activity that refinancing comprises, and that's 69.3% vs. 69.7% the week before. Mortgage rates were little changed in the week, averaging 4.94% for 30-year loans (still a steal).

In big news today, especially if you live in New York City, Walgreen (WAG) announced plans to buy privately held and wildly ubiquitous Duane Reade drugstores. Until now, you had to travel to find a Walgreen's in the five boroughs but buying Duane Reade makes it an instant dominant player in the biggest market in the country. The nation's largest drugstore operator agreed to pay about $623 million for Duane Reade Holdings, the biggest drugstore chain in the city (seriously, sometimes you'll find two Duane Reades on a single block), where it has operated for 50 years. Walgreen is trying to improve sales by converting thousands of stores to a new, cleaner layout, trimming the total number of products the company carries, and targeting consumer tastes more closely. Duane Reade's 2009 sales totaled about $1.8 billion; Walgreen had sales of $63.34 billion in fiscal 2009, but although sales keep growing due to new store openings, analysts are concerned that it is losing market share to rival CVS Caremark and to big box retailers.

WALGREEN:

In earnings, there was good news from several bellwether companies. Much-awaited results from Hewlett-Packard (HPQ) showed profit up 25% in the latest quarter because of cost-cutting and a stronger showing from its personal-computer division. Revenue was up in most of the technology company's major divisions and HP raised its 2010 outlook, citing "accelerating market momentum." The numbers show that technology spending by corporations is mercifully creaking back to life. HP is the world's biggest maker of PCs and printers and its rising revenue shows that businesses and consumers are spending on technology; also its latest results are the first from a major tech company to include the full month of January. After the market closed Wednesday the company said its net income was $2.3 billion or 96 cents per share, well up from $1.9 billion or 75 cents per share. Without one-time items, HP said it would have earned $1.10 per share, beating the average estimate of $1.06. The stock moved during the session and again after hours:

HEWLETT-PACKARD:

People seem to be traveling again, or at least some of them are. Shares of online travel leader Priceline.com Inc. (PCLN) did well Wednesday as the company reported that its fourth-quarter net income doubled to $78.5 million or $1.55 a share from $34.2 million or 75 cents in the quarter last year. Revenue rose 33.4% to $541.8 million. Worldwide gross travel bookings growth accelerated in the fourth quarter.

PRICELINE:

Martha Stewart Living Omnimedia (MSO) also reported a profit for the fourth quarter, reversing a year-ago loss, as its revenue got a big boost from $10 million in deferred royalties from Kmart. The company earned $20.8 million or 37 cents per share, up from a loss of $8 million or 15 cents a year ago; analysts were looking for 30 cents. Revenue was up 20% to $87.6 million, better than the expected $84.9 million. Publishing revenue fell, but ad revenue rose for the first time since the second quarter of 2008. Broadcasting revenue and Internet revenue were both sharply higher and merchandise revenue, including that $10 million from Kmart, was up 84% to $25.7 million. All segments saw improved profitability, with operating income for publishing and broadcasting swinging to profit -- a good sign for consumer spending. The stock zoomed over 8%.

MARTHA STEWART LIVING OMNIMEDIA:

Another bellwether, agricultural-equipment maker Deere & Company, posted higher-than-expected earnings as wider margins at its farm equipment and finance units helped it to overcome weak economic conditions. Even better, the company raised its outlook for fiscal 2010 machinery sales growth to 6% to 8%, after previously predicting a 1% loss. Profitability in the tractor unit was especially impressive, with margins of nearly 10% — triple what investors had expected. The company, the world's largest maker of ag machinery, credited staff cuts and lower raw material costs. Deere reported a first-quarter of $243.2 million or 57 cents a share, up from $203.9 million or 48 cents; revenue fell 6%. Analyst expected a mere 19 cents on sales of $4.12 billion. Net income at the company’s financial services unit nearly doubled to $85.1 million, as the spread between Deere’s borrowing costs and the interest it charges customers widened. One caution: Deere warned that industry sales in Europe, especially Central Europe and the former Soviet Union would remain under pressure due to economic conditions and low levels of credit. The market liked what it heard, sending shares soaring:

DEERE & CO.

In retail, the ICSC-Goldman report said that retail sales fell back steeply last week, dropping 1.6% from the prior period for a year-over-year for rate of minus 0.7% -- the first negative year-on-year rate in six months. Let's assume the declines, since they followed a week of strong gains, were caused by the miserable weather. For February, ICSC-Goldman sees sales rising a year-over-year 2% percent, down from. January's 3%. Despite last week's drop, retail stocks are coming strongly out of a three-week slump:

S&P RETAIL INDEX (RLX):

As regards production, a solid gain at the nation's factories, mines and utilities in January raised hopes that the upswing in industrial output over the past two quarters may foster a genuinely sustainable recovery. The Federal Reserve reported a 0.9% monthly increase for January, the seventh straight monthly gain; year over year, industrial production last month improved to plus 0.9% from minus 2.2 % the month before. Year over year there were declines in business equipment, construction, non-industrial supplies and mining but month over month, production was up in every major market and industry group -- the first time we've seen that since last August.

Manufacturing output had the sharpest increase since August, up 1% after a 0.1% fall the previous month. But all major subcomponents of production showed improvement, a truly encouraging sign for the sustainability of the economic recovery. Much of the manufacturing rise was due to a jump in auto assemblies, but gains were healthy elsewhere, as in motor vehicles & parts, which jumped 4.9% after a 0.3% decline in December. The overall capacity utilization rate is still low but rose to 72.6% from 71.9%.

Just a note lest we throw our hats too high in the air: Even though capacity utilization is up 6% from the record low set in June, it's still below normal, and far below the pre-recession level of 80.5% in November 2007. This may be the highest level for industrial production since December 2008, as witness below, but production is still about 10% below the pre-recession levels at the end of 2007.

CAPACITY UTILIZATION, ALL INDUSTRIES:

(Rises in industrial production eventually and inevitably lead to inflationary pressures, so we wish the Fed luck in their vow to keep interest rates low for that extended period they frequently mention.)

And in the sixth straight increase, the prices of goods imported into the U.S. jumped in January, driven by higher prices for oil and gas, the Labor Department said Wednesday. Import prices rose 1.4% after a 0.2% advance in December. Roughly three quarters of the increase was attributable to higher fuel prices. Import prices rose for the sixth consecutive month and 11.5% for the year ending in January, the largest 12-month gain for the index since a 13.1% jump in the period from September 2007 to Sept. '08.

All things considered the day could have been worse, especially with background worries about Greece defaulting. On the subject of which, about eight years ago, give or take a few months, I told a friend that I thought a standard European currency was – my exact words — "the worst idea since the square wheel." For backup I cited Jane Jacobs, the late, brilliant (a word I use maybe once a decade) writer on city and national economies and urban planning. Briefly, Jacobs pointed out that as we know, when a nation's currency declines in value relative to the currencies of its trading partners, theoretically the decline itself should help correct the nation's economy through simple feedback: Automatically the nation's exports become cheaper to customer nations, which should help to increase exports; and its imports become more expensive which should help its own manufacturers. A declining currency ought to work like both a tariff and an export subsidy for exactly as long as needed, triggering the appropriate correction.

But national currencies don't really do this. They're good at carrying feedback information, but bad at triggering the appropriate adjustments. Why? For the simple reason is that nations are not discrete economic units -- although we pretend they are and compile statistics and formulate policy based on that pretense. Cities are discrete economic units. Nations include greatly-differing city economies that need different corrections at a given time, and yet they all share a currency that gives them the same information at a given time. Indeed, this consolidated information on the nation's international trade is bad for cities with respect to their foreign and domestic trade. On a larger scale it's very bad for big heterogeneous countries like Europe trying to share a single currency: You have many different economic units with different needs unfortunately all receiving the same feedback. For most of a decade the euro kicked sand in the greenback's face. But now we have Greece at last proving Jane Jacobs's point, soon perhaps to be followed by Spain. Interestingly, the major Greek phone company (OTE) has taken a 34% dive since October but the Greek Coke bottling company (CCH) is down only 7.5%. Which tells us something about priorities.

Thursday's possible market movers are the Producer Price Index and jobless claims. The natural gas and petroleum status reports are always worth watching, and leading indicators may tell us something we need to know. Earnings continue with all eyes on Wal-Mart, as well as Daimler, CBS and Reliance Steel, among others.