The headlines may be the gloomiest since the Great Depression. The reality is not.

First, let's head off any accusations of Pollyannaism, head-in-the-sandism, or clueless capitalistism, by acknowledging that the U.S. economy is suf fering through a rough spell. Growth is minimal, inflation is worrisome, the job market is stagnant, the dollar is weak, the housing industry is in shambles, the credit markets continue to sputter, the federal budget deficit is expanding again after several years of dramatic improvement, wage growth is slow, gasoline and medical care are expensive, and the country has no idea how it will pay its multitrillion-dollar Social Security and Medicare obligations. Other than that, things are just dandy.

As with any economic slowdown -- whether it is officially tagged a recession or not -- risks to future prosperity are heightened. The Federal Reserve seems to have done a good job preventing a catastrophic meltdown of the financial system, though that battle isn't completely won yet. And we won't know for a while if the central bank's easy-money policies of late have planted the seeds for a lasting resurgence of inflation. Bond markets -- for treasury issues and high-quality corporate bonds -- are probably the best predictors of future inflation. They are not forecasting a return to the 1970s.

The economy has suffered through three bubbles in the past decade -- in dot-com stocks, housing, and commodities. At the peak of each, people believed prices in those sectors would rise forever.

The dot-coms and housing proved -- once again -- the ironclad economic rule that all markets rise and fall. The commodity bubble will eventually burst, too, which will result in declining prices for food, energy, and yes, gasoline. No one knows when this will happen, but it probably won't until the dollar begins to regain its value relative to other currencies.

WHAT WOULD trigger a dollar rally? Improving prospects for growth in the U.S. economy would be the surest cure for the dollar doldrums, attracting more foreign capital to our shores. That may take some time, too.

The current troubles have only the weakest connection to some of our long-term challenges, such as fixing Social Security, Medicare, and the overall health care system. These are important issues, essential to the country's long-term economic prospects, but they don't have to be fixed in order to escape the current unpleasantness.

So how bad are things? In some crucial respects, they've never been better. The two most important indicators for gauging the financial well-being of the typical American are jobs and wages.

According to the Bureau of Labor Statistics, 146.3 million Americans have jobs. That's more than any month in our history, except November 2007, when 146.6 million people were working. Ninety-five percent of Americans who want jobs have them.

The BLS tracks something called hourly wages of production and nonsupervisory workers. It's probably the best measure of how much working Joes and Janes are earning. The average hourly wage in April was $17.88, the highest ever -- up 28.5 percent from eight years ago.

Of course that figure doesn't mean much if higher prices are eating up all of the gains. They're not, but inflation has taken a big chunk out of those higher wages.

WE OFTEN hear people say wages are flat and the cost of everything from gas to tuition to milk is soaring. That's not quite right. Wages are rising, but over the past few years, prices have been keeping pace, especially for food and energy. Inflation-adjusted wages are only a couple of cents higher than they were in 2004. The slowdown is partly a result of higher prices and partly a result of employers spending more to pay for workers' health benefits. It's too early to tell if wages are entering a prolonged period of sluggish growth.

Still, inflation-adjusted wages are 3.5 percent higher than they were in 2000, at the peak of the previous economic expansion. The increase reflects the American economy's resilience, given that the nation suffered through a recession and the current housing-induced slowdown during those eight years. Inflation-adjusted wages are, by the way, 5.7 percent higher than they were 20 years ago -- when America's standard of living was not exactly Third World.

Today's economic risks are serious. We must avoid policy errors, such as the ones that turned a slowdown in 1929 into the Great Depression: overly tight money, trade restrictions, higher taxes, and a willingness to let banks fail by the hundreds. The Fed has made it amply clear that it will provide liquidity and protect the solvency of the banking system.

The voters will have to decide in November if they want to elect officials who will erect trade barriers and hike taxes. In the meantime, we should all remember that the country remains prosperous when judged by the most fundamental standards. But we need to be careful to avoid misguided policies that could transform today's hyperbolic headlines into tomorrow's reality. That's change we can do without.
Contact Bob Rayner at (804) 649-6073 or brayner@timesdispatch.com.