The broad trend in U.S. economic data held up surprisingly well in May, considering the downgrade in expectations lately. The Capital Spectator’s Composite Economic Index (an equally weighted mix of 18 indicators) gained 0.9% last month, reversing April’s slight retreat. The portion of leading indicators in that mix fared even better, jumping 1.8% in May. Overall, May was a respectable month for growth, despite various signs of trouble in some isolated areas. We shouldn’t minimize the warnings signs. In particular, the sharp fall in job growth is disturbing, although it’s still unclear if it has legs. Meantime, the overall picture is still one of forward momentum. That’s encouraging because it offers some hope that the economy could withstand a slowdown in growth in the labor market, at least for a short period.

There’s also good news when we look at rolling year-over-year change in a broad measure of the economy. The CS Composite Economic Index is higher by nearly 6% for the 12 months through May. That’s the fastest annual pace in more than a year and it suggests that the economy still has a fair amount of expansionary momentum, perhaps more so than generally recognized.
The bottom line: the fact that our broad measures of economic activity are comfortably in the black as of last month and on a 12-month basis suggests that the risk of recession is low for the immediate future.

There are limits to extrapolating recent history as a guide to the future. But compared with this point last year, when the summer slump was upon us, the general overview of economic activity is in better shape. As a result, it’s not obvious that the months ahead will be a repeat of 2010. The stock market seems to agree, courtesy of an annual return that’s comfortably in positive territory. As we write, the S&P 500 is up by well over 10% for the past year, a sign that the market doesn’t anticipate a recession.

Nonetheless, this is no time for complacency. It’s a precarious moment in the economic cycle. As I noted yesterday, there’s a lot riding on the next employment report. The question before the house: Is the dramatic fall in job creation in May a sign of things to come, or just a temporary stumble? The broad review of economic activity suggests a case for optimism. But until the June employment report is released on July 8, the guessing game rolls on.