Employment growth remained weak in May, the government advised earlier today, but the day’s other economic news offers more encouraging fare. Personal income and spending for April were strong enough to stabilize the year-over-year pace of growth. Meanwhile, the ISM factory index for May continues to signal growth–wobbly, perhaps, but growth just the same. Taken together with disappointing jobs report, it all adds up to a mixed bag, but that’s better than definitive, across-the-board evidence that the cycle has taken a turn for the worse.

The monthly view on income and spending for April doesn’t look all that impressive, although we can certainly breath a sigh of relief that consumption rose a bit after swooning so dramatically in March relative to the previous month’s surge. Disposable personal income, unfortunately, still looks mediocre.

But the monthly data masks far more encouraging news: the stabilizing of the year-over-year percentage changes for income and spending. A month ago I wondered if personal income growth’s decelerating rate of annual growth through much of 2011 had finally ended. The April data suggests we should answer in the affirmative. Does that mean that recession risk has fallen? History shows that new recessions are usually preceded by sharp declines in disposable personal income’s annual rate of change—declines that typically roll on through the duration of the recessionary months. As such, it’s encouraging to see the year-over-year rate for income hold steady in the last three months at about 2.45%.

In fact, the improvement is even more pronounced in real terms. The inflation-adjusted disposable income tally for April was roughly 0.6% higher than its year-earlier level—that’s considerably stronger than the 0.3% annual pace logged for March.
Meanwhile, today’s ISM numbers look healthy enough to argue that the economy’s ailments aren’t necessarily fatal, at least not yet. As the third chart below shows, there’s still a fair amount of forward momentum in the manufacturing sector. New orders in particular imply that factory activity will continue to bubble in the near term.

The big risk is that Europe spins out of control and takes a toll on the U.S. Based on what’s been reported in recent days, it’s hard to be optimistic that the worst will be avoided. Traders are certainly placing their bets on where it appears to be headed. As Reuters reports:

Hedge funds are piling into bets against the bonds of core euro zone countries like Germany and France, signaling a growing fear that nations once considered safe havens could be dragged down by the crisis in peripheral states like Greece and Spain.

It’s unclear how much of the worries about Europe are infecting economic conditions in the U.S. But until the Continent’s crisis calms down (again), things will probably get worse before they get better. The good news is that there’s still not an open-and-shut case that the U.S. has hit a macro wall. The margin of safety on this front may be thin, but it’s all we have at the moment.