(FORTUNE Magazine) – The economic news has been almost all good lately. Manufacturing is on the rebound. Corporate profits are up. So are retail sales. In the U.S., third-quarter economic growth is expected to clock in at a close to 5% annual clip. Other major economies--even Japan's!--are finally showing signs of economic life.

It's almost enough to make you believe that after three years of economic coughs, fits, starts, and disappointment, we're finally in the clear. That's certainly the consensus on Wall Street. "I'm highly confident about the economy," says Jim Glassman, senior economist at J.P. Morgan Chase. "There's been a distinct change in mood. And whenever confidence in the outlook changes, the economy takes off."

But there's one statistic that keeps getting in the way of such positive thinking. The U.S. economy employs 2.7 million fewer people now than it did when the recession started in March 2001. The layoffs continue: In August, even as other economic indicators were coming up roses, another 93,000 jobs disappeared. According to the Business Cycle Dating Committee of the National Bureau of Economic Research, the recession ended in November 2001. But the jobs recession didn't--almost two million jobs have been lost since then. "We are in a recovery, because output is growing," says one veteran member of the recession-dating committee, Conference Board economist Victor Zarnowitz. "But normally, output and labor growth go together."

Say hello to the new normal, in which the economy can grow at a healthy clip while jobs become ever scarcer. We got a taste of this during the "jobless recovery" that followed the recession of 1990-91. That jobless recovery did finally segue into a job-rich boom starting in 1994, making the handwringing at the time about the "downsizing of America" seem silly in retrospect. This time around, the post-recession employment decline has been much deeper and has gone on for much longer. So while the experience of the early 1990s gives cause for hope, there's really no telling what comes next.

What can be said is that the economy is now on the upswing. Even corporate executives, who as a group remained remarkably--and, it turns out, correctly--glum all through 2002, are happier now. "We saw a definite change in the trend starting about the beginning of July, and it has continued through today," says Bill Zollars, CEO of Yellow, a trucking giant based in Overland Park, Kan. Yellow counts 400,000 manufacturers and retailers as its customers, which gives Zollars a unique perspective on the economy's turning points--and he thinks he's witnessing one. "It's pretty much across the board geographically as well as by segment."

But corporate decision-makers remain cautious. "The number of transactions being done is growing, but the size of those transactions is getting smaller," says Michael Fleming, president of the Equipment Leasing Association. "In the past, people would make an investment decision to replace all their forklift trucks. Now those decisions are much more incremental." The same goes for hiring. "When companies lack the confidence to hire permanent employees, they hire temp employees," says John Bowmer, chairman of Adecco, a global temporary-help firm. "That's happening now. It's just not happening as consistently or as fast as in previous recoveries."

Some of that caution will fade as the recovery sinks roots. But it's not just caution that's keeping companies from hiring. It's that they are able to get ever more work done with ever fewer people. In the second quarter of this year, productivity--the economic value wrung from each hour of work--rose at a 6.8% yearly rate. That comes on top of 5.4% productivity growth in 2002, the biggest annual gain since 1950.

In the 1970s, 1980s, and early 1990s, with productivity growth in the U.S. poking along at about 1.5% a year, economists and policymakers could only fantasize about such a jump. Now that we're living through it, though, it's not as much fun as they thought it would be.

There's a long history of new technologies and new ways of economic organization bringing leaps in productivity and, eventually, living standards. The U.S. may be about to make one of those leaps. That would be a good thing in the long run; in the short run, though, such changes are traumatic. The printing press, for example, launched the world into a new age of progress and enlightenment. It also threw a bunch of scribes out of work.

In a recent paper that has drawn attention in economic circles, New York Fed researchers Erica Groshen and Simon Potter tried to quantify just how different this recession and its aftermath have been from standard postwar experience. They found that in the recessions of the 1970s and 1980s, the job market was pretty much evenly divided between industries "undergoing cyclical change"--those that started hiring again as soon as the recession was over--and those "undergoing structural change"--industries that kept on firing (or hiring) right through both the downturn and its aftermath. In the early 1990s the structural changers' share of the job market rose to 57%. This time it's 79%. That would appear to mean that serious structural change is afoot in almost every corner of the U.S. economy. So while the building industry lost jobs in 2001 but began adding them again once the recession was over, most Americans now work in industries that have either spent the past three years steadily shedding jobs (manufacturing, computer consulting, call centers) or steadily adding them (health care, real estate, education).

The pessimistic view of all this is that American workers are losing out to machines and to low-paid software engineers, call-center operators, and factory workers in India, China, and elsewhere. The optimistic view, which seems to be backed up by those great productivity numbers, is that the U.S. economy is simply doing what it does best--adapting to new realities. Among those realities: The world really is one market. Digital technology really is changing the way the economy works. And making the transition to this new economy (remember that phrase?) will mean massive job losses in some industries and massive job gains in others.

So far, though, the gains haven't kept pace with the losses. And while all the hiring by restaurants and hospitals (see table) is nice, most of those jobs don't pay as well as the manufacturing and tech jobs that have disappeared during the past three years. We're willing to believe that lots of high-paying jobs will be created in the future by industries we haven't even thought of yet. But that won't pay the bills today.

Here's the worry: Serious job gains may be years off, and until then the consequences of sustained higher unemployment could ripple throughout the economy. Consumers have kept spending right through the doldrums, their wallets padded by declining interest rates and a record wave of mortgage refinancing. Now rates are rising, the refi boom is over, and Americans are deeper than ever in debt. Mortgage delinquencies and credit card troubles are on the rise. If jobs remain scarce and wages flat, the only prudent course for most people will be to tighten their belts. If they do, this fall's sizzling economic rebound could give way to yet another stretch of doubt, disappointment, and slow growth.

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