Oh, reality can be tiresome. There was Wall Street, chuffing along on day five of its bounce, ignoring the realties of the sick US economy, when along came a reminder from the black hole that is the country’s financial sector (AKA The Swamp).

American Express warned that many of its customers were having trouble repaying their debts; something that shouldn’t be too much of a surprise with unemployment at a 26-year high and climbing, house prices down 18.6% in the past year, and still falling, and foreclosures up 30% in the past 23 months.

What’s amazing is that all these facts are ‘knowns’: it’s not the first time Amex has reported slow payments and house prices and foreclosure updates were out and about in the past two weeks. And we will get further updates on the extent of the housing slump with new home starts for last month when they are released later this week.

And yet Wall Street was ignoring this: the market was up 2% on the Dow at one stage and ignored the bigger than expected slump in US industrial production last month and associated bad news from the heartland of the country’s manufacturing sector.

Fed chairman, Ben Bernanke, had cheered markets by revealing that he thought the US had dodged a depression, and he told 60 Minutes in the US (don’t reckon we will see it here) that there were “green shoots” starting to appear in various parts of the economy.

And UK bank, Barclays joined the likes of Citigroup, Bank of America and JPMorgan in seeing its own ‘green shoots’ in its profit and loss account, while at the same time looking to raise more capital by selling assets: a curious bit of give and take ignored by UK and US investors now looking only for good news.

If anyone had been thinking instead of peering upwards, they would have realised that the current upturn has been driven by reports of ‘good news’ in some major banks that have been previous basket cases, so if another struggling financial group came along with some ‘bad’ news, the odds were the market would take a lurch.

And that’s what Amex (who bought a bank late last year to get its hands on some Government bailout money) did with its update. American Express said its credit card default rates rose to 8.7% from 8.3% in January and the percentage of loans at least 30 days past due rose to 5.3% from 5.1%.

That jolt made investors more aware of bad news: so when Alcoa said it was cutting dividend by 82%, capital spending and raising up to $US1.1 billion in new capital, traders took notice. Even though Alcoa reported after the bell its shares fell 10%, meaning trading tomorrow will start off on the wrong foot with the Dow member stock down sharply. The quarterly dividend will be cut to 3 cents a share from 17 cents. The dividend cut will save $US400 million a year; the company has already chopped 13,500 jobs worldwide and is looking to save another $US1 billion next year.

The capex spending cut at Alcoa is bad news for business investments and jobs. Companies such as Ford, GM, Toyota, United Technologies, GE, Boeing and a host of other big spending employers are cutting production, jobs and future spending on plant and equipment.

No wonder business investment fell 1.3% in January and will go on being weak for months to come.

And it’s therefore no wonder that industrial production remains deeply recessed: down 11.2% in the past year, the biggest yearly fall since 1975.

That’s nowhere near the 20%-30% falls seen in Germany, Japan and South Korea or Taiwan, but it’s very damaging and won’t improve, judging by some of the moves by major manufacturers in aerospace, automotive and heavy industry.

Don’t kid yourselves or be fooled by the attempted rebound from sharemarkets: the heart of the US economy is sick and there’s no medicine that will fix it outside of higher spending plans from corporate America and American consumers.

In releasing the details, the US Federal Reserve said that level of factory capacity (utilisation) fell to 70.9%, the equal to the lowest reading ever.

The fall did have a couple of important qualifications: it was worse than expected because warmer temperatures slowed the output of utilities (and output of electricity fell), and it was buoyed by the re-opening of a number of car plants and supplier facilities. The reopened factories started producing cars and parts and that made the figures look a bit better, up 10% in the month.

And a separate report from the Fed on the health of manufacturing in and around New York state (the so-called “Empire State survey”) had more bad news: another all time low as as orders, sales and inventories plunged. The Federal Reserve of New York general economic index dropped to minus 38.2, the lowest level since data began in 2001, from minus 34.7 in February.