Following this morning’s disappointing retail sales numbers, it was hard for one to be optimistic about the economy, but speeches by President Obama and Ben Bernanke changed all that.

President Obama delivered a 45-minute speech on the economy at Georgetown University today designed to update the American people on where we are, what we have to do going forward, and lay out the steps that the government is taking to transition us from recession to recovery. During his speech Obama said “There is no doubt that times are still tough. But by no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope.” I consider those to be very encouraging words.

Similarly, at a speech today to faculty and students of Morehouse College, Federal Reserve Chairman Ben Bernanke was upbeat about the economy as well. Bernanke said that he sees “tentative signs” that the steep contraction in U.S. economic activity may be waning, and that he is confident in the economy’s long term prospects. Bernanke cited recent figures on housing, consumer spending and new vehicle sales as some of those signs that the recession is slowing.

The words now coming from government officials are only echoing what the markets have been telling us for the last month as they rebounded off the lows. In fact, as of late, market expectations for economic data have been too dire, and the actual data releases have been consistently surprising to the upside.

Bill Hester of the Hussman Funds provides us with the following chart and writes:

“The rebound in the stock market has been at least partially fueled by economic data that consistently came in better than expected last month. Some part of this rally is likely relying on the continuation of these “positive” surprises.

To track the trends in economic performance, we keep an ongoing tally of how data is announced relative to expectations – a method of analysis originally inspired by Bridgewater Advisors . Economic data that surpasses expectations gets added to a 3-month running total. Data that comes in weaker than expected gets subtracted. A rising line means that economic data is generally coming in above expectations, while a falling line means that the data has disappointed. A descending line could be the result of an economy that is not expanding as quickly as economists predict or – like in 2008 – it could be the result of an economy that is contracting at a faster rate than expected…

The red line in the graph above tracks the S&P 500 Index and it shows that stocks have recently closely tracked the trend in data surprises. The market fell along with the deteriorating surprise line last year, rallied slightly prior to improved news in December, and then rolled over again as the news weakened versus expectations in late January. In March the market rebounded along with a more pronounced persistence in favorable economic news versus expectations.”

Even other indicators of “flight-to-quality” and fear have declined significantly since March. Gold is off its highs and is currently testing its 200 day moving average.

I’m optimistic that the worst is behind us.

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