Unemployment numbers out for March, recovery on it's way?

Yesterday the BLS issued a very positive report suggesting that unemployment across the board went down to levels we have not seen in a year.  Here is a snapshot:

Even the number that I always pay attention to, U-6, shaved almost 2% in one year.  There is no way to spin this, this is an improvement when viewed alone.  If we are primary a consumer driven economy then getting people back to work is the only way to recover true organic growth.  

So what gives?  For a long time many skeptics including myself have been suggesting that we are going to see higher and higher unemployment, stating so even as early as last year.  I think there is a very clear explanation and incidentally this is precisely the same explanation that has us staring at $108 oil and soon to be $4 gasoline.  The federal reserve has been furiously pumping money into the economy, the same money he was unable to pump in two years ago due to bank's refusals to lend.  The money is sloshing around and having the kind of effects that our politicians would like to see (minus the unfortunate increase in commodity prices of course).  

However, there is a price to pay sort of speak for such actions.   To get a nice glimpse of it, peruse through the March 2011 ISM report and it becomes quite apparent.  Specifically:

Index	Series Index March	Series Index February	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI	61.2	61.4	-0.2	Growing	Slower	20
Prices	85.0	82.0	+3.0	Increasing	Faster	21

Twenty one months of increase prices with the actual index standing at 85 is scary.  What this essentially means that the cost of a marginal improvement in employment is going to be showing up for the rest of us in every area of our lives.  Not that it has not already, have you seen your grocery bill recently?  In other words the free money is allowing business to hire, but it is also raising the costs of higher goods (see commodities).   

But far more importantly than the cost of red leaf lettuce is the fact that businesses and corporations will need to figure out creative ways to mask these prices if they want to preserve their bottom lines.  For now the way to mask is the infamous "keep price same, but lower size" approach.  That may work for a while longer, but there is a limit to how much one can shrink the package.  Prices will rise and profits will shrink, this will in turn result in bad numbers across the board for many companies along with reduced earnings and poor guidance.  

While it is difficult to predict the timing of this, it will inevitably happen.  Until then the markets and talking heads on TV will continue to cheer and pump the economy while completely missing the big picture.