There are no major economic reports scheduled for Friday so a day of the data vacuum awaits. This offers an opportunity to review the latest numbers in the dismal science in search of clues about where we’ve been in recent history and where we might be going.

First up is the Philly Fed’s Aruoba-Diebold-Scotti business conditions index. Its steady climb for much of this year through late-August suggested that the economy was rebounding, albeit off of severely low levels of commercial activity. More recently, the index slumped, although the latest albeit incomplete data hints at the possibility of an uptick in the weeks (months?) ahead, as the chart below shows. (Click to enlarge)

Only in the hallowed halls of Congress could the notion of spending vastly higher amounts of money convince so many that the net result will be a reduction in spending. But such is the conceit with the new health care bill being hammered out these days.

The new legislation to expand health care insurance will reportedly cost $849 billion. But this massive increase in government spending will, we’re told by Senate Majority Leader Harry Reid, reduce the federal budget deficit by $130 billion.

The danger is not the past, but the future.

Thursday’s update on weekly jobless claims may be the warning sign. New filings for jobless benefits were unchanged last week, hovering at 505,000, matching the previous week’s tally. Although this number is down sharply from it’s recessionary peak of 674,000, set back in late March, 500k reflects distress in the labor market; In other words, job growth is largely MIA.

Although definitive statements about the future are always suspect in finance and economics, it’s reasonable to assume that the threat of deflation as a clear and present danger has passed. But we can’t say for sure. To the extent that a double-dip recession remains a possibility, so too does the hazard of a fresh round of deflationary pressures.

Yet those concerns look minimal at this point. The primary challenge, as we’ve discussed routinely this year, is tied to the headwinds of growth. The risk of another of follow-up cataclysm to last year’s drama, by contrast, fades with each passing month. In short, the central issue is one of managing the chronic problems that await rather than the acute ones that recently passed.

Central bankers are a powerful lot and so it’s easy to assume that they’re also prescient. When you’re making decisions that affect the livelihoods of millions of people—billions on a global scale—confusing people with their institutional authority can become habit forming. But central bankers are mortal, and therefore prone to mortal decisions, a.k.a. flawed decisions. Heck, it happens to the best of us at times. The only difference is that most people’s day jobs don’t cast a long shadow over a nation’s money supply.

No less an expert on central banking than Paul Volcker, the patron saint of inflation slayers everywhere, advises that “central bankers suffer from hubris like everybody else.” That’s not surprising, but it does have consequences.

The news on new filings for unemployment benefits once again favors the idea that economic recovery is continuing. It’s a tenuous rebound, one ripe with caveats, including a big one we’ll discuss below. But it’s a rebound nonetheless.

The Labor Department Thursday reported that initial jobless claims dropped to 502,000 last week, down from the previous week’s 514,000. That leaves us at the lowest level since the week through January 3, 2009. As our chart below reminds us, the trend has certainly been our friend this year for the general change in jobless claims.

One of the supporting pillars in the recent rally is the recognition that inflation isn't a problem. Last year's financial crisis knocked the stuffing out of the system's tendency to devalue the purchasing power of fiat currencies over time. The net result is an unusual level of economic cover for keeping interest rates low--really low. Indeed, the primary goal of the Federal Reserve and its counterparts around the world over the past year has been the unbridled pursuit of higher inflation, though not necessarily high inflation.

In the depths of the crisis, the immediate objective was simply to deliver some level of inflation, which is to say something other than deflation. Allowing deflation to fester is simply too great a threat. The basic prescription has been printing money. How's it working?

Friday's update on October's employment status is neither surprising nor encouraging. The U.S. economy is still bleeding jobs, but that's hardly shocking at this point. It's been clear for some time now that the risk of a jobless recovery is high.

Nonfarm payrolls shed another 190,000 positions last month, a modestly lower pace than September's 219,000 loss but still far away from anything suggesting stabilization in the labor force, much less growth.

Sometimes one comment says it all. That describes Jim O’Neill's observation that a fair amount of levitation work awaits central bankers the world over. Timing, of course, is unknown. Meantime, there's a few (or many) potholes on the road to economic salvation.

The chief global economist at Goldman Sachs Group in London tells Bloomberg News that "there are all kinds of risks” bubbling these days at the intersection between the price of money, inflation, economic cycles and everything else in between.

The first rule in the money game is recognizing that there are no silver bullets. Asset pricing is a black box. It has become somewhat less of a black box after a half century of analysis by financial economists, but what we don't know about how markets work still dominates by far.

Much of what we do know has come from reverse-engineering the system's output. We can see prices and we can measure their fluctuations and linkages in countless ways. The trouble is that the financial gods forgot to give us the code that produces the output. That leaves us with the thankless task of predicting returns indirectly. But even then we're working with imperfect information. Ours is a world of ex post data. We know the past, but that's a poor window into the future. We have the output but we're forever debating the input. As a result, the link between ex post and ex ante data is shaky. That doesn't mean we should ignore the historical record, but it should only be one of several layers of analysis for developing capital market assumptions.

In September, we surveyed the latest numbers for the major asset classes and wondered how long everything could continue rising. A month later, we have our answer. As our table below shows, divergence has returned to the world's capital and commodity markets.The switch to a wider array of results was inevitable. As we've been discussing for some time, the great snap-back period of 2009 was destined to be a temporary fling. When it became clear earlier this year that the world would not end, assets were repriced accordingly. But the first hint that something other than uniformity will prevail in performance trends arrived in October's tally of asset class results.

Today's income and spending report for September takes the shine off of yesterday's glowing GDP news. A closer look at what unfolded in the third quarter has now arrived in terms of the impact on consumer sentiment and the ongoing pain from the labor market. The upward momentum that was all the rage in August, which provided potent aid in the bullish Q3 GDP trend, took a turn for the worse in last month of the quarter. The fear is that the negative sentiment will roll on into the final months of the year.

The government today reports that real disposable personal income retreated by 0.1% last month and personal consumption expenditures tumbled 0.6%. We noted yesterday that the Q3 GDP report, encouraging though it is, would be succeeded by a war for growth and today's numbers only bolster the forecast.

It's official: the U.S. economy expanded by 3.5% in the third quarter, the Bureau of Economic Analysis reported Thursday. Encouraging as that is, it's neither a surprise nor anything near closure for the financial and economic hurricane of the last year or so. But it is a step in the right direction, albeit a tentative and not-yet fully confirming step that the walk ahead will be equally brisk.

Nonetheless, good news is worthy of celebration at this point, if only for a moment. After four straight quarters of retreat, a gain in GDP is no trivial change. All the more so when we dive into the numbers and learn that the expansion was broad based. All the major categories that factor into the final GDP calculation posted healthy gains in Q3. That is, personal consumption expenditures, gross private domestic investment, exports and government spending were higher during the three months through September. That compares with red ink on those ledgers in past quarters, save for government spending and a mild rise in consumer spending in Q1 2009.

Wednesday's update on new orders for durable goods reminds us that the slash-and-burn of the Great Recession is over, replaced by the tedious business of rebuilding what's been lost.

Once again, the news is encouraging, if only because the deep pain of the recent past fades as an imminent threat. And so the crowd can look with somewhat less-anxious eyes to the 1.0% rise in new durable goods orders and find a measure of comfort.

The next round of economic releases is about to commence, ushering in the next phase of the post-apocalyptic financial crisis. Although we're likely to see a fresh batch of encouraging numbers, there's plenty of reason to remain humble on expecting that salvation is imminent for one simple reason: the labor market continues to bleed.

"While job losses will likely end early next year, robust job gains may still be several quarters away," according to Christina Romer, the chair of President Obama's Council of Economic Advisers, in testimony to Congress last week.

Twenty-first-century investing is all about predicting. Developing intuition about markets, asset classes and how they interact is too often overlooked, if not ignored outright. That's a mistake for strategic-minded investing, albeit a mistake that's understandable in the crowd's rush for quick and easy profits.

It's hard to miss all the self-proclaimed seers running around espousing magic formulas and the three most-important investment gauges that insure big gains. Rarely do you hear of the dark side of these easy rules, such as the possibility that maybe they're byproducts of data snooping, survivorship bias and other gremlins that harass seemingly flawless assumptions.

Tuesday's news on housing starts wasn't great, but neither was it bad. Perhaps we might label it a mildly positive yawn. More of the same is coming, we predict, in a range of economic indicators.

It's fun to forecast extremes. It makes the headlines. People pay attention when you scream the world is coming to an end, or that the next great bull market will commence on Friday at 2:39 p.m. But projecting middling results rarely taps the zeitgeist du jour. Popular or not, that's the future we see coming for some period in the U.S. Oh sure, there will be volatility, surprises here and there, and even some mayhem in the economy and the capital markets at times. But for the most part, the future looks rather boring, at least compared with what's passed over past 12 to 18 months.

Is the stock market overvalued? Wolfgang Münchau said it is in Monday's FT. He cites some persuasive evidence, based on analysis by smart people like Professor Robert Shiller and Andrew Smithers. The U.S. stock market is overvalued by more than a third, we're told.

Our own work suggests that caution looks increasingly prudent when it comes to risk exposures in asset allocation. But we're not sure. To be precise, we're not sure that a given quantitative profile of the market dispenses timely information about what returns will be in the immediate future. And neither does anyone else.

The trend remains our friend in the land of initial jobless claims. The absolute level is still reflecting pain in the labor market, but there's no denying that the general ebb and flow of new filings for unemployment benefits is favorable.

As our chart below shows, new filings dropped again last week to a seasonally adjusted 514,000, below the previous week's 524,000, according to the Labor Department. That puts the latest number at the lowest level since the week ended January 3, 2009.

Jason Zweig, one of the best financial journalists in the business, asks in his latest Wall Street Journal column : Can you make the risk of stocks go away just by owning them long enough?

This is a popular question and one that has been the focus of entire books, such as Jeremy Siegel's Stocks for the Long Run. It's also a useful question, but it's important to recognize that it's only one question for strategic-minded investors.