Stand by for the “two-speed America” story to start emerging: that’s where the rebound in financial markets and on wall Street is way ahead with the sluggish wider economy, especially housing.

It’s a line that will be prompted by events of the past two days: banks such as JPMorgan and then Goldman Sachs reporting big results, as well as encouraging figures from the likes of Intel and Google (although with worrying detail), contrasted with poor results from the more retail-focused Citigroup and the still-staggering economy.

The data flow from the economy, such as unemployment, manufacturing, exports, prices and retail sales confirm the economy is no longer dying, but it’s not showing the sort of strength to base market hopes of a V-shaped rebound next year.

Google produced better-than-expected earnings this morning and directors said the worst of the recession was now behind the company and the economy.

Other media companies have made similar comments (News Corp’s Rupert Murdoch won’t like the size of the Google result), but it’s not a surge as newspaper group McClatchy revealed when it reported another poor 28% fall in quarterly advertising revenue and forecast further declines through the end of the year. But deep staff and cost cuts helped boost the bottom line.

McClatchy publishes The Miami Herald , Sacramento Bee and other papers around the US; it’s the first US media group to report quarterly earnings. A plus from the result was the small rise in ad revenues from the second quarter.

Goldman Sachs earned $US3.19 billion ($A3.77 billion) in the third quarter, up from the weak quarter in 2008, as expected, but lower than the record second quarter when earnings reached $3.44 billion. Like JPMorgan, Goldman Sachs made much of its money out of trading and fixed-interest operations as it borrowed cheaply from the Fed and lent it out at higher rates or invested it in government bonds paying 2%-3.3% (It’s a great scam).

Citigroup (34% owned by the US government) made a small operating profit of about $101 million, but its bottom line dropped into the red with other charges and costs. The bank cut the amount it reserved for loan losses and defaults in consumer banking, which raised eyebrows.

Consumer price inflation was weak last month, with no sign of a breakout anywhere and manufacturing activity continues to improve in some parts of the US from weak to poor.

Wall Street focused on these results and again ignored the terrible damage being done to housing where foreclosures hit an all-time high in the September quarter (up from the previous quarter’s record), despite government-driven and lender-supported efforts to prevent them.

Evidence of that was apparent in the consumer arms of  JPMorgan and Citi: both claimed to be seeing signs of a stabilising in bad loans and credit problems, but the reality is that they are continuing and are damaging the economy.

Housing defaults are still soaring; that’s something the big Wall Street banks are glossing over in their rush to paint the rosiest picture possible of their businesses.

RealtyTrac said foreclosure activity rose 5% in the September quarter from the three months to June to total more than 900,000

“During that time, 937,840 homes received a foreclosure letter — whether a default notice, auction notice or bank repossession,” the RealtyTrac report said. That’s one in every 136 US homes were in foreclosure, which is a 5% increase from the second quarter and 23% higher than the third quarter of 2008.

The survey said Nevada was still the worst-hit state with one filing for every 23 households. But the problem is spreading.

September saw a 4% fall in foreclosure filings at 343,638, but 87,821 were repossessed by lenders (that’s about as many houses as there are in Canberra).

The quarter saw a record 237,052 repossessions, up 21% from the previous three months. So far this year 623,852 American homes have been taken back by lenders. That’s more than 2.2 million people affected, according to some estimates.

Government schemes to help people facing foreclosure (which kick in when letters are sent warning home owners, or when legal actions are started) seem to be merely postponing, not halting the flood of foreclosure activity. There seems to be a surge, then an easing, then a surge, as we saw in September as all options are exhausted and the inevitable happens.

The home-buying tax break is helping generate more buying of new and existing homes and it has stabilised home prices. But it’s also helping lenders sell foreclosed homes faster and not easing the pain of those owners who face losing their homes.

Unemployment is now a major factor behind home losses, the subprime surge is over and more and more people with high quality mortgages are getting into trouble. people with jobs are refinancing existing mortgages as rates ease below 5% and mortgage applications rise.

Even so, people with jobs are walking away from mortgages because the value of their houses has fallen well below the size of their mortgages, which rules out refinancing

So even if you have a job, you can’t refinance. If you have lost your job, the problem is much deeper.

That’s why consumer spending and credit remains weak to negative; and why small rises in retail sales are leapt upon by markets desperate to see signs of consumer strength. The real economy remains moribund in the US, a picture at odds with the positive reaction to corporate results and the huge trading profits from US banks, which a year ago were basket cases and on government life support.