Concern is high that the U.S. economy may be close to or entering recession, yet the fundamentals lend little support to such a projection. There has been no decline in jobs, while corporate health is very strong. So the recession concerns appear to be driven more by the decline in stock prices than by economic developments.

There can be no recession without job losses, although the data still report job gains. Initial unemployment claims have retreated below 400,000, after a modest rise this summer, reflecting plant shutdowns due to parts shortages from the Japanese earthquake and hurricanes hitting the East Coast. This Friday's payroll employment report assumes more importance than usual, since it will show whether the economy continues to grow jobs.

Businesses have been consistently and disappointingly slow to hire in this expansion, keeping growth fairly modest. However, business financial health is very strong. Companies report record levels of profits, high profit margins, and a record $2 trillion in cash on their balance sheets that is growing by roughly $1 trillion at an annual rate. Most companies have either paid down debt or extended their maturities into the future at record low interest rates. Inventories are lean and, in some cases, excessively so. It is hard to find reasons for firms to reduce their headcount for cyclical reasons.

While a downturn in economic activity seems unlikely, there is also no obvious basis for any increase in the pace of growth. Businesses appear more aggressive than households, reflecting their cash heavy balance sheets and profitability. So, they are investing in new equipment, acquiring competitors (for cash), and buying back stock. In contrast, households are a bit more cautious. For example, they appear more inclined to rent than buy a home, despite the record high level of housing affordability and historically low mortgage rates. They have also increased their savings rate from roughly zero to around 5%. All in all, it is most likely that growth will remain positive, but muted, as we seem to lack triggers to move the economy off this slow growth path. As the late Nobel Laureate Paul Samuelson once said, "The stock market has predicted nine out of the last five recessions." The equity market's performance is certainly not well correlated to the performance of corporate America. Friday's employment report will shed light if anything has changed.

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Dr. Lieberman is chief investment officer at Advisors Capital Management, Hasbrouck Hts., NJ, a provider of privately managed portfolios and financial planning services for industry professionals and direct clients. Phone: 201-426-0081.