Americans turned less optimistic about the economy in early February on worries about falling income even as their outlook on the jobs market rose to a record high, a survey released on Friday showed. The Thomson Reuters/University of Michigan overall index of consumer sentiment fell to 72.5 in early February from January's 75.0, which was the highest level since February 2011. The latest figure fell short of the median forecast of 74.5 among economists polled by Reuters.

Even so, the latest drop is still a blip in the context of the recent revival in consumer sentiment. Yes, today’s dip could be a sign of things to come. But much depends on what happens next with personal income—disposable personal income (DPI) in particular. The latest update on DPI was a sign that falling rate of annual increases may soon stabilize... maybe. Indeed, DPI jumped 0.4% in December, the biggest monthly rise since last March and a dramatic turnaround from November’s slightly decline. Alas, we won't know if there's fresh momentum until March 1, when the next update on income and spending hits the streets.

It’s unclear if more good news for DPI is coming, but if there is it’ll surely be closely linked with the ebb and flow of the labor market. On that front, the respectable rise in private nonfarm payrolls for January is encouraging (as is the positive year-over-year change in payrolls without a seasonal adjustment). Will February’s payrolls report also bring good news? Yesterday’s update on initial jobless claims suggests we should be optimistic.

"Bottom line, confidence gave back half the jump seen in January, but at 72.5 is still the 2nd best reading dating back to last May as the labor market has shown signs of continued improvement," says Peter Boockvar, Miller Tabak’s equity strategist.

Deciding if the slip in consumer sentiment has broader import for macro may become easier next week with the scheduled updates for several economic numbers, including retail sales (Tues, Feb 14), industrial production (Wed., Feb 15), housing starts and initial jobless claims (both on Thurs., Feb 16). Meantime, there's a small crack in the rebound to consider. It may turn out to be nothing, but the recovery is still fragile enough to keep everyone guessing for the foreseeable future.

Housing starts and new building permits are inching higher. Meantime, housing inventories have fallen to 2005 levels, notes Bill McBride at Calculated Risk. The drop inspires Slate's Matthew Yglesias to think on the bright side and write: lower inventory "obviously doesn't mean that we're primed for a return to full boom levels of residential investment and construction employment, but it does mean that we should be primed for a return to something like long-term average levels of residential investment and construction employment."

Perhaps it's no surprise to find that a housing industry economist is expecting better times, but David Crowe of the National Association of Home Builders argues that 2012 will be an improvement over last year. "I'm looking at 2012 as sort of a ramping event to get a much more solid recovery in 2013," he tells AP. If so, maybe we'll see some supporting evidence in next week's scheduled updates for housing starts and building permits for January.

Housing's contribution to the economy is estimated to be as high as 18%, and so even modest growth for this sector could be just the thing that's needed to keep the expansion going.

The housing market is "improving," says Crowe, "but it is not going to be great. We are so far down we almost have to see some improvement.”

Residential property investment is poised to increase at more than twice the rate of GDP this year, predicts Bank of America Merrill Lynch, reports HousingWire. According to the analysts, even a modest revival "will help reduce the stubbornly high bucket of long-term unemployment and underpin confidence. A virtuous cycle can start to develop, but it will be gradual."

If so, we may see some clues in next week's housing reports. Hope springs eternal for this sector… again.

And for good measure, there's a new deal to help sort out the foreclosure mess. Perhaps it's no surprise that homebuilder shares have popped recently. "Anything that helps resolve the issue is bullish for homebuilder stocks," says Thomas Lawler of Lawler Economic and Housing Consulting. "It’s good for builders that are well-capitalized and don’t need to go to the bank to get a loan, and those are basically the publicly traded builders."

What’s more, the descent in jobless claims isn’t an artifact of seasonal adjustment. As the second chart shows, unadjusted claims have been dropping consistently on a year-over-year basis since last spring, and nothing's changed as of last week.

The claims numbers would be a lot less compelling if there was lots of conflicting evidence that the economy is crumbling. But you don’t have to look too hard to find sources of optimism elsewhere. As I noted last month, the December numbers generally looked pretty good, or at least good enough to debate the forecast that a new downturn was coming. In the subsequent weeks, the updates have continued to offer encouragement. Examples include the surprisingly strong rise in private payrolls for January, which, by the way, still looks good even without the seasonal factor; and manufacturing activity continued to perk up last month. I’m still worried about consumer spending and income, but if jobs creation can remain positive this risk may fade too. A more potent problem is the higher recession risk in the eurozone and the UK. Will those threats infect the internal dynamics of the U.S.? Stay tuned.

Meantime, there’s a danger of obsessing over the labor market as the key factor for anticipating the health of the business cycle. Monitoring and evaluating a wide array of indicators is essential. But it’s also clear that there if there’s any hope of skirting a new recession, the odds for success are closely tied with the ebb and flow of the jobs market—more so than ever.

"It does look like with these [jobless claims] numbers that the labor market is on a positive footing, which is good to see,” Sean Incremona, an economist at 4CAST, tells Reuters. “Job creation is probably going to be what keeps this recovery alive. Things do seem to be holding up somewhat better than we had expected.”

Millan Mulraine, a strategist at TD Securities, agrees: “The recent positive momentum over the past two months is being sustained. If we stay within this range, then we should see employment growth pick up.”

There’s no guarantee, of course, but if deterioration is brewing that will take down the broad trend, it’ll soon be obvious for all to see. For now, however, the odds of new recession look fairly low based on the latest set of numbers for new claims and a range of other indicators.

A relevant point in this debate is recognizing that the currency factor tends to be a wash in the long run. In the short run, of course, forex is quite volatile. But unless you plan on making lots of short-term tactical trades based on currency volatility, it's not clear that this is a crucial issue. For example, consider that the Trade-Weighted US Dollar Index for the world’s major currencies posted an average one-year change of -0.9% for the past 30 years, or relatively close to zero. In other words, the fluctuations bounce around a zero mean. That’s another way of saying that there’s relatively no trending behavior. For comparison, the U.S. stock market (S&P 500) has a clear history of trending, as suggested by its average one-year change of 9.4% for 1981-2011.

Of course, if volatility is a short-term concern, hedging has appeal. Vanguard advises that “unhedged bonds add a level of volatility more similar to equities than to bonds and can therefore offset any diversification benefit of international bonds.” That’s true, but as part of a broad asset allocation strategy using the major asset classes it’s not obvious that the extra volatility is detrimental. Depending on the time period, the extra vol may even be productive. In fact, as I recently reported, a passive mix of the major asset classes (including unhedged foreign equity and bond positions) has proven to be competitive with actively managed asset allocation funds over the past decade.

Consider too that a U.S. investor is well advised to diversify her currency exposure beyond greenbacks. In a globalized economy, betting the house on one currency--even if it's the world's reserve currency--looks extreme. Unless you have some definite views on the dollar, particularly in the short and medium terms, there’s a compelling case for holding at least some of your assets in non-dollar-denominated assets. It's tempting to forecast that the dollar will strengthen, or weaken, over some future time horizon, but accuracy is notoriously scarce in forex predictions, even by the standards of equity investing.

Keep in mind too that currency hedging is expensive as a long-term proposition. That said, Vanguard’s new foreign bond ETFs will carry relatively low expense ratios of 0.30% for the broad fund, and 0.35% for the emerging markets product. Those levels are at the bottom end relative to the existing product lineup. But if Vanguard didn’t plan on hedging currency risk, it’s reasonable to assume that the expense ratios would be even lower.

In the long run, currency hedging almost certainly comes at a price. This point is quite clear in the newly published Credit Suisse Global Investment Returns Yearbook 2012. Hedging can help soften return volatility in the short run, the study notes, but over longer-term horizons the strategy takes a bite. “Typically, the benefits fall the longer the horizon, and rapidly turn negative,” according to the yearbook’s authors (including Elroy Dimson of the London Business School). “Rather than lowering risk, hedging by longer term investors raises risk.”

The currency factor is, of course, a source of risk. In isolation, this risk can be dangerous, particularly for the average investor. Indeed, as the Credit Suisse study reminds, predicting currency returns is quite difficult, perhaps even more so than for stocks and bonds. But holding a portfolio of different and relatively uncorrelated risks can be beneficial, especially if you have a long-term investment horizon.

Then again, generic prescriptions only go so far. Much depends on your specific asset allocation. Keep in mind that if you own foreign stock funds, you probably already have a fair amount of forex exposure--most non-U.S. equity funds don’t hedge, or do so minimally.

Meantime, let’s no dismiss Vanguard’s argument for hedging completely. Forex volatility may be a wash in the long run, but in the short term it can radically help or hurt returns. Since bond returns are generally modest compared with stocks, an unhedged foreign bond allocation can be quite volatile. But volatility for a given asset class isn’t necessarily troublesome if it’s part of a broadly diversified mix.

Nonetheless, the larger question is whether you want exposure to a currency other than the U.S. dollar? For most investors, there’s a good argument for answering “yes,” albeit in moderation. But if you disagree, or prefer to access forex risk through something other than the fixed-income channel, Vanguard will soon offer a competitive alternative. For sophisticated investors, the prospect of using the Vanguard product and making a separate allocation to forex with, say, one or more currency ETFs is another possibility.

Any way you slice it, forex is a big deal when venturing into foreign markets. Indeed, the forex factor is likely to be the overwhelming driver of returns for foreign bond allocations, for good or ill, in the short and medium terms. The problem is that it's quite difficult to figure out in advance if this influence will help or hurt. That inspires opting for the unhedged allocations and looking for risk management tools elsewhere, starting with broad diversification across asset classes. There are many ways to manage risk, but some are more compelling (and less costly) than others.

Update: A bit of long-run forex perspective from a new research report from Andrew Smithers, who writes: "France and the US have grown at almost exactly the same pace over the past 110 years and their real exchange rates today are also almost exactly the same as they were at the end of 1900."

The rising trend in job openings wouldn’t mean much if other labor market indicators presented conflicting information. But the news for jobs creation has been relatively encouraging lately. The labor market in January was perky, even without the seasonal adjustment, and the falling trend in initial jobless claims implies that there’s more good news down the road.

Will tomorrow’s weekly update on new filings for unemployment benefits bring more of the same? The outlook is a bit cloudy, with the consensus forecast anticipating a small rise for weekly claims, according to Briefing.com.

Alongside the sudden drop in policy uncertainty, economic prospects in the US appear to have improved considerably. Last Friday’s announcement of a 250,000 drop in unemployment led to a surging stock market as investors began to believe the recovery had finally begun. Our research suggests this has been aided by the calming of policy uncertainty.

Unfortunately, policy uncertainty still appears extremely high in Europe with the Eurozone crisis. When this finally calms down, European growth should then have additional impetus to recover.

Compared with the pre-2008 era, however, policy uncertainty remains elevated, as the chart below shows. Nonetheless, the recent decline is pronounced, suggesting that the future is considerably less murky these days vs. last year’s second half. Last October, Baker and Bloom warned that “Policy Uncertainty Is Choking Recovery.”

The EPU index is calculated from a mix of policy related references in news stories and other data, such as the number of tax laws expiring in the near-term future and predictions of government spending. For the details and the data, along with a new white paper on the index, visit the EPU’s web page: www.policyuncertainty.com/Home.html

German Manufacturing Orders Rise
The Wall Street Journal | Feb 7
German manufacturing orders rose more than expected in December, driven by a surge in demand from outside the euro zone, in the latest sign that Europe's largest economy may yet avoid recession despite the euro zone's debt crisis. New orders rose 1.7% on the month in adjusted terms, after slumping by a downwardly revised 4.9% in November, data from the economics ministry showed Monday.... While German orders data are "very volatile", the latest figures "seem to suggest that factory activity has not collapsed," even after German economic growth moderated in the fourth quarter "as demand from abroad was hit by the global slowdown," said Annalisa Piazza, a strategist at Newedge in London. "If anything, a slight pick-up is expected in the first quarter of 2012," she said.

German Industrial Production Unexpectedly Dropped in December
Bloomberg | Feb 7
German industrial output unexpectedly dropped the most in three years in December as Europe’s debt crisis weighed on confidence and the global economic slowdown damped demand.... While the German economy probably shrank 0.25 percent in the final three months of last year, data this year suggest it may avoid recession, which is commonly defined as two consecutive quarterly contractions. Business sentiment jumped to a five-month high in January and factory orders gained 1.7 percent in December, driven by demand from outside the 17-nation euro area. “It appears that factory orders are stabilizing and a turning point may have been reached,” said Jens Sondergaard, senior European economist at Nomura International Plc in London. “We are becoming slightly more optimistic on the German business cycle, especially if we get a little more clarity on how the Greek situation is going to evolve.”

Germany, France and EC increase pressure on Greece
The Telegraph | Feb 7
Germany and France have told Greece there will be no €130bn bailout unless it agrees harsh new austerity cuts and reforms, while the European Commission warned the deadline for a deal "has already passed".

Euro crisis could almost halve China's growth, IMF says
BBC | Feb 6
A eurozone recession could almost halve Chinese growth this year, according to the International Monetary Fund (IMF). The IMF forecasts China's economy will grow by 8.2% this year - but warns that a recession in the eurozone could cut this to 4.2%. It said Beijing should get ready to inject billions of dollars into the economy to fend off any downturn.

Second (UK) recession fears grow as small business confidence plummets
The Guardian | Feb 5
The beleaguered state of the UK economy has been underlined by three separate reports revealing that Britain's one million small and medium-sized businesses were facing their most difficult year since the recession of 2009. Sharp declines in bank lending to smaller firms, and a collapse in confidence across the sector outlined in the reports will add to concerns that the economy is about to enter a second recession in three years, analysts said. The gloomy reports will also put pressure on the Bank of England to pump an extra £50bn into the economy when it meets on Thursday.

Fears of recession return as (UK) retail sales fall
Yorkshire Post | Feb 7
Retail sales fell last month, making it the second-worst January since 1995 and raising fears that Britain is poised to return to recession. According to the latest British Retail Consortium (BRC) data, only January 2010 was worse after food sales slowed sharply following a boost over Christmas.

History suggests that when the trend in labor market growth is at a ~2% pace on an unadjusted basis--and rising--the odds of a new recession are relatively low. The qualifier that the pace of annual job growth must be rising is crucial. Job creation at or above the 2% mark alone doesn’t say much—unless the rate of increase has been strengthening, which is clearly the case. Short of a sudden and dramatic deterioration, it's hard to see the trend in nonfarm payrolls as something less than productive for the economic outlook.

But could the trend in nonfarm payrolls be a quirk? If so, we should be able to find some conflicting numbers elsewhere in the labor market. One possibility is the weekly jobless claims data, which has a reasonably good record in dropping clues about the major turning points in the economy. But here too the trend has been our friend recently, as the second chart below shows. The unadjusted 12-month percentage change in weekly claims in January was -12.2%, based on monthly average numbers. That’s a relatively robust decline rate. If there was a new recession brewing, we’d likely see unadjusted claims rising on a year-over-year basis. So far, so good.

Two data series that post encouraging trend lines are hardly definitive proof. On the other hand, it’s far from irrelevant that these two measures are signaling continued expansion for the labor market and, by extension, the broader economy. Yes, there are plenty of risks to worry about, including the deteriorating trend in personal income and spending. But with the labor market rebounding, the healing process seems set to continue. But if jobs creation can stay positive, the odds increase that spending and income will stabilize.

The bottom line: much depends on the labor market. That's usually true, of course, but the stakes are especially high these days. For the moment, however, the numbers are encouraging.

● Why Capitalism?
By Alan Meltzer
Summary via publisher, Oxford University Press
A review of the headlines of the past decade seems to show that disasters are often part of capitalist systems: the high-tech bubble, the Enron fraud, the Madoff Ponzi scheme, the great housing bubble, massive lay-offs, and a widening income gap. Disenchantment with the market economy has reached the point that many even question capitalism itself. Allan H. Meltzer disagrees, passionately and persuasively. Drawing on deep expertise as a financial historian and authority on economic theory, he provides a resounding answer to the question, "why capitalism?" Only capitalism, he writes, maximizes both growth and individual freedom. Unlike socialism, capitalism is adaptive, not rigid--private ownership of the means of production flourishes wherever it takes root, regardless of culture. Laws intended to tamper with its fundamental dynamics, such as those that redistribute wealth, fail. European countries boasting extensive welfare programs have not surpassed the more market-oriented United States.

● The Complete Guide to Portfolio Construction and Management
By Lukasz Snopek
Summary via publisher, Wiley
In the wake of the recent financial crisis, many will agree that it is time for a fresh approach to portfolio management. The Complete Guide to Portfolio Construction and Management provides practical investment advice for building a robust, diversified portfolio. Written by a high-profile investment adviser, this book reveals a practical portfolio management framework and new approach to portfolio construction based on four key market forces: macro, fundamental, technical, and behavioural. It is an insight that takes the focus off numbers, looking instead at the role of risk and behavior in finance.

● New Perspectives on Asset Price Bubbles
Edited by Douglas D. Evanoff, George G. Kaufman and A. G. Malliaris
Summary via publisher, Oxford University Press
This volume critically re-examines the profession's understanding of asset bubbles in light of the global financial crisis of 2007-09. It is well known that bubbles have occurred in the past, with the October 1929 crash as the most demonstrative example. However, the remarkably well-behaved performance of the US economy from 1945 to 2006, and, in particular during the Great Moderation period of 1984 to 2006, assured the economics profession and monetary policymakers that asset bubbles could be effectively managed with little or no real economic impact. The recent financial crisis has now triggered a debate about the emergence of a sequence of repeated bubbles in the Nasdaq market, housing market, credit market, and commodity markets.

In short, it's hard to see the latest government figures for nonfarm payrolls as anything other than good news for expecting that the economy will continue to grow. In addition, it looks like the leading indicator of weekly jobless claims remains a reliable barometer of things to come. The persistent decline in new claims in last year's second half was too striking to ignore. And when claims dropped to a 3-1/2 year low in mid-December, that was an especially strong clue that there was momentum in the labor market, and it was one reason why I wrote at the end of last year that "the risk of a new economic recession in the U.S. looks low." And last week, a broad review of the major economic indicators offered confirmation that the business cycle was in no imminent danger of falling off a cliff.

Granted, there's still plenty to worry about, starting with the falling trend in personal income and spending. This danger sign is on the top of my list of developments that could spoil the party later this year, assuming it rolls on. But if the labor market can keep growing at 200k-plus a month, that will go a long way toward slowing and perhaps even reversing the deceleration in consumption and income growth.

"The report was much better than expected in terms of indicating fundamental strength in the economy, and the strength is in the most important place in terms of contributing to momentum," advises Pierre Ellis, senior economist at Decision Economics, via Reuters. "There was a strong increase in private sector employment, widely spread. The expected demerit from the big boost in messenger/courier jobs in December did not appear. The combination of December and January shows a big jump in the usage of labor hours, signifying real growth in the economy. Income growth is moving up almost accordingly, which means an increase in cash flow to consumers."

Some analysts say flat out that we should dismiss initial claims because of seasonal factors. But that view isn't convincing. The year-over-year change in unadjusted claims supports the seasonally adjusted figures. Indeed, as the second chart below reminds, new claims have been routinely falling by around 10% a year since last spring before adding a seasonal adjustment.

Perhaps the debate should focus on whether jobless claims are fundamentally delivering the mother of all misleading signals for reasons that go behind technical issues. Has this indicator's relationship with the business cycle changed? There are precious few absolutes in macro and so we need to keep an open mind. As the saying goes, this is economics, not physics. But the argument that jobless claims are no longer relevant at this point would be stronger if they were a lone signal of optimism. But as we learned yesterday, manufacturing seems to be improving too in the new year. A big part of the improvement is related to higher auto sales. As Bloomberg reports: "Automakers sold new cars and trucks in January at the fastest pace since the 2009 'cash for clunkers' program without resorting to profit-sapping discounts, signaling demand returned to pre-recession levels."

True, job growth is still sluggish, as yesterday's ADP Employment Report advises. But the labor market has been sluggish for several years and the economy has still managed to expand, albeit modestly and in fits and starts. Has something changed? Maybe, but you won't find a smoking gun for that view in today's jobless claims numbers.

"It certainly suggests we will continue to see job growth at the higher end of the recent range (which has been between) 100,000 to 200,000," says Christopher Low, an economist at FTN Financial. "If claims continue to drop then we should see job growth stronger than that."

But if the claims data is wrong this time, and there's a recession approaching, as a handful of economists warn, there will be clear signs of a downturn in the labor market. Employment trends aren't considered a leading indicator, but at some point there'll be a clear break from the recent trend of modest job growth to something more ominous. Perhaps we'll find some clarity in tomorrow's payrolls report for January. For what it's worth, the crowd's expecting more of a gray area rather a decisive number one way or another. The consensus forecast anticipates a net rise of 168,000 for private nonfarm workers, according to Briefing.com. That's not high enough to put the recession fears to rest, although it's not low enough to give the recession forecasters a victory either. If 168k turns out to be accurate, what it will do is keep the debate alive about the next phase for the business cycle.

"This is a mild positive, but with the market at these lofty levels, you need to have continued good news for the market to sustain its gains," says Beth Ann Bovino, senior economist at S&P. "This is not a particularly meaningful data point, but it is more good than bad."

In his ideal world, says Grant, he would lay out a three-year program to convert back to the gold standard, probably at around $2,500 per ounce of gold. He adds that he would take great care to avoid the notorious blunder made by Winston Churchill and the British back in 1925, when they went back on the gold standard at too high a price, and imposed brutal deflation on the economy. Alas, he admits, this would need an act of Congress.

Curiously, there's no mention of U.S. deflation in the 1930s, or what would happen in the 21st century when money demand surges (as it inevitably does from time to time) and what that would mean for the economy that's tethered to a currency with an inflexible value. We know the result from the last experiment with gold during a time when money demand skyrocketed. Indeed, we know that when demand for liquidity rose sharply, the supply constraint imposed by the gold standard delivered a devastating blow to the economy. This is actually old news, available in any number of studies, starting with Milton Friedman and Anna Schwartz's A Monetary History of the United States, 1867-1960 and Barry Eichengreen's Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. For a popular history of what went wrong by linking the currency to gold, Liaquat Ahamed's Lords of Finance: The Bankers Who Broke the World delivers a powerful reminder that the precious metal's history is disturbingly problematic. Even when the U.S. had no central bank and the gold standard reigned supreme, financial crises were quite common, such as The Panic of 1907. Is it any wonder that the sooner that nations abandoned the gold standard in the early 1930s, the sooner their economies began to recover? No, not really.

If the proponents of the gold standard want to convince the wider world that their views have merit, it seems to me that they must confront the metal's troubling history in those historical episodes of soaring money demand. It's easy (if you'll pardon the phrase) to paper over these serious economic questions, but it's hard to take the gold bugs seriously when this fundamental issue is ignored. Then again, it's not surprising that you'd minimize the fatal flaw in your policy prescription.

Sure, the present system is far from perfect. Indeed, there are lots of challenges that come with central banking, and it's clear that mistakes have been made. Perfection and macroeconomics are two words that should never be used in the same sentence, except as a warning that the twain shall never meet. Meantime, the first question that the hard money folks should address is telling us why a gold standard would be better this time around. That's going to be tough, to say the least. A fair reading of economic history strongly suggests that we should remain skeptical for thinking that barbarous relic is the solution we've been waiting for. It failed before, which is why the Fed was created in the first place. A central bank is the lesser of evils, but that's the nature of economics.

For some context, here's how the ISM manufacturing index compares with the latest data on rolling 12-month percentage changes for the stock market, new orders for durable goods, and industrial production:

Based on the recent upturn in durable goods orders, it's not terribly surprising to see manufacturing activity rising. But with the stock market's annual return doing all it can to stay above zero, and with industrial production's pace slipping, the big picture is still mixed. All the more so after learning that ADP's estimate of job growth in January slowed by more than a trivial degree.

Will the economic outlook become any clearer after tomorrow's update on weekly jobless claims? Don't count on it, according to the consensus forecast from economists via Briefing.com. The crowd expects that new filings for unemployment benefits last week totaled 375,000. If true, that's just a slight drop from the previous week. That's mildly encouraging, but it won't be enough to still the debate about recession risk. Unless, of course, there's a big downside surprise for jobless claims, which would inspire a fresh round of thinking optimistically.

If your investment strategy didn't turn a tidy profit last month, you're either overweighted in cash or you're doing something wrong. We don't often see months like January, when returns are healthy and far flung. Rest assured, the easy money won't last. But for a brief, fleeting moment, at least, recent history makes everyone look like a genius.

For the moment, at least, it's tempting to see the latest numbers as confirmation that the sluggish but still-positive revival in the labor market rolls on. “The job market continues to grow at a moderate pace,” says Jonathan Basile, a senior economist at Credit Suisse. “We’re on a gradually improving path for the labor market.”

By that reasoning, nothing much has changed for payrolls. The pace still isn't great, but an economy that's minting 170,000 jobs a month is high enough to cast some doubt on the idea that a recession is imminent if not here already. But analysts who think that a downturn is now a high risk can also point to history in search of support. Using the Labor Department's private nonfarm payrolls database as a guide, net job growth above 150,000 isn't usually associated with the onset of a recession. But "usually" leaves room for debate, especially these days. Indeed, in December 1969, for example, when the business cycle peaked, private nonfarm payrolls rose by 123,000. And at the peak in November 1973, on the eve of the worst recession since the 1930s, private job creation was a robust 246,000. Of course, the fall of 1973 witnessed the start of the Arab-Israeli war and the arrival of an oil embargo, an event that pushed the U.S. economy into recession. History doesn't repeat, but sometimes it rhymes. Is the trouble in the Middle East these days a worrisome trend? And there's always the festering crisis in Europe to consider. Lots of potential risk factors hang in the air as the U.S. appears to muddle through.

If there's another recession lurking, job creation will soon falter. We'll also see signs of trouble in other economic indicators. For the moment, however, there's enough a statistical support to argue both sides of this probability coin. Someone is wrong, of course, and it's likely that the data will soon tell us who's misreading the trends.