(FORTUNE Magazine) – Nearly all the economic news since summertime has been depressing, confirming suspicions that this recovery is a dog--uneven, anemic, and jobless. Some of the news has been downright alarming: The manufacturing sector, which was expanding nicely last spring, began contracting again--though only modestly--in late summer. And consumer spending, the backbone of the recovery so far, has slowed over the year, as evidenced most recently by worse than expected retail sales in September. Going into October, the risk of recession, according to Economy.com's index, had risen to 48%, up from 30% the month before and from just 7% last March.

The most bearish prognostications focused on fears that consumers would finally succumb to the general malaise and sharply cut back spending, or that the housing industry would finally cool down. But all year uncertainties about corporate profits have been casting a pall. No forecast or article about the economy has seemed complete without a sentence saying something like "Unless corporate earnings begin to grow again, the economy will continue to struggle," and there wasn't much reason to hope that it would happen. Just a few weeks ago, stock market mavens were exceedingly gloomy about how corporate profits would behave in the third quarter.

But as third-quarter earnings statements flowed in, the worst fears of analysts and forecasters turned out to be unfounded. Profits are, in fact, looking pretty good. Most companies are beating analysts' expectations, at least modestly, and only a small number--10% or so--are coming up short.

Not that there haven't been some stinkers--semiconductor manufacturers posted disappointing numbers, as did some big outfits such as Kimberly-Clark and McDonald's. But the list of companies meeting or beating analysts' expectations is long and impressive. From Citigroup to Eastman Kodak, General Electric, General Motors, IBM, Johnson & Johnson, Microsoft, even Yahoo--the majority of big companies are doing either as well as or better than most experts predicted a month or two ago. With half the S&P 500 members reporting, profits are up more than 10% over third-quarter 2001, and analysts say it looks as though earnings growth will be about 6.5% for the group once all the numbers are in. That, of course, is nothing like a boom, but then again, maybe we've had enough of booms (and busts) and are ready to appreciate solid--and possibly sustainable--earnings growth.

Why are corporate profits so important? By themselves, they aren't that big a deal. Even in the best of times, they amount to less than 10% of GDP. But earnings growth creates profound ripples throughout the economy. It determines the path of business investment, which in turn determines job growth and productivity. Earnings are also what ultimately determine stock prices, which in turn affect consumer confidence. One of the reasons confidence has been so depressed this year is the more than $7 trillion in value that the bear market has subtracted from investors' stock portfolios, mutual funds, and 401(k) plans. The two-week bounce-back in October--driven exclusively by the good news about earnings--restored more than $1 trillion of that.

The best reason to be bullish about the trend in profits is more behavioral than economic: the fear factor. After a year's worth of corporate accounting and management scandals, it's a good bet that companies have already dumped whatever bad news they've had into their income statements and that the third-quarter earnings numbers are in fact ultraconservative. If you had to swear to the accuracy of this quarter's financial results or risk going to jail--as big-company CEOs and CFOs now are required by law to do--wouldn't you be lowballing as much as you could?

If corporate profits extend their comeback, we may finally see the long-awaited return of business investment, which in turn will lead to increases in employment and set the stage for stronger GDP growth. Thus, the corporate sector could start taking up the slack in the economy just in time to offset the consumer-spending slowdown that seems to be beginning.

This kind of scenario--call it serendipitous synchronicity--is far from certain, and lots of things could louse it up, such as the unintended consequences of a war with Iraq. But after all the bad news that the economy and the equity markets have absorbed over the past two years, it's comforting to contemplate that a happy ending is at least a possibility.

ROB NORTON, a former fortune executive editor, is a freelance writer, editor, and consultant in New York City. He can be reached at rob@robnorton.com.