All through the last four weeks, and accelerating in this first week of May, markets have repriced for a weaker U.S. economy. That process stopped today on a better-than-expected payroll report for April, itself ambiguous.

The important stuff: Mortgages have approached 4.75 percent, the lowest since last fall, taken by the all-market arbiter of reality, the 10-year Treasury note. That yield collapsed from 3.6 percent one month ago to 3.15 percent yesterday, back to 3.2 percent today on the job data.

Crowd noise has been deafening trough the last two years, in two octaves. The background bass has been certain of an accelerating economy, and someday will be correct. The high-pitched shrieking, rising over the last winter, has been the choir certain of inflation, and accusing the Federal Reserve of debasing the currency.

Must be careful, here. The recent leader of the debasing-"inflationistas" has been Pimco founder Bill Gross, the all-time best bond-fund manager. More impressive: In youth in Las Vegas he succeeded in running a card-counting system and won at blackjack. Last month he announced he had dumped all Treasurys and gone short. A very bad trade.

If a guy like that can be that wrong … what is happening? Go to the data. The 244,000 gain in payrolls released today came from the "establishment survey" of businesses, the historical favorite of the Fed — historical, for good reason.

It is, however, heavily adjusted for seasonality (often inaccurately), and struggles to be a representative sample of businesses, especially as new ones open in expansion cycles, or close in tough ones. The Bureau of Labor Statistics also keeps a survey of households, which in April showed a loss of 190,000 jobs. Take your pick.

The detail resides at, together with some important tidbits. The average workweek remained unchanged for all workers, which a warming economy and tightening labor market would lengthen. Average hourly earnings gained only 0.1 percent in April, 1.9 percent year-over-year — hardly fuel for inflation. Or for anything else. Another measure: the percent of U.S. population at work or looking for it is stuck at 64.2 percent, the lowest in more than 30 years.

Another job market data stream: weekly filings for unemployment insurance. Volatile, to be sure, but held near 400,000 in the winter and bottomed in the 380-range in March. Two weeks ago, 431,000; last week, 474,000 — undoubtedly bloated by some quirk, but deteriorating by any measure.

The Institute for Supply Management surveys are among the best, near real time. In April, manufacturing continued to be the economic bright spot, overall 60.4 (very high, 50 is breakeven), and its employment component in the first four months of 2011 has been the best in 38 years.

However, the strength in the overall index came from two cycle-enders (inventories and backlogs), and exports, which are at risk to an overseas slowdown. The ISM also surveys the vastly larger service sector (five times as large), which arrived at 52.8, the lowest reading since last August, and the drop from March’s 57.3 was the steepest in the 14-year history of the survey.

On net, the accelerating-recovery people have no case at all, and even the "moderate recovery" line at the Fed is shaky, which the Fed knows.

All of the debasement/inflation howling boils down to one thing: how you feel about the Fed’s quantitative easing ("QE") operations. None of the hard data supports the howlers. A lot of bright, caring and well-informed people see QE as "money-printing," and with all cordial respect, you are mistaken. It is not what you think. Do all you can to try to understand what is really happening to the Fed’s balance sheet, reserves and credit creation.

QE2 (the Fed’s second round of quantitative easing) began as QE1, the market selling bonds in fear of inflation, overwhelming Fed buys, rates rising; QE2 is ending as QE1 did, the Fed pulling so many long-dated bonds out of the market that it has overwhelmed the inflation sellers. The Fed might just get its way after all, and drive long-term rates down far enough to give housing a chance.

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