Whatever happened to the Great Depression? Not the real one from 70 years ago, the lost decade of unimagined misery and Steinbeckian angst, the worst period in the history of modern capitalism. I mean the replay we were promised this year. The one we were told was the inevitable counterpart to the greatest financial crisis since a couple of medieval Italians first sat down on a Florentine bench and invented the word “bank”.

I don’t know about you but I feel a bit cheated. There we all were, led to believe by so many commentators that the sub-prime crisis was going to force the United States into a new era of dust bowls and breadlines, a slump that would call into question the very functioning of the capitalist system in the world’s largest economy. Carried away on the surging wave of their own economically dubious verbosity, the pundits even speculated that this unavoidable calamity might presage some 1930s-style global political cataclysm to match.

Well, it’s early days, to be fair, but so far the Great Depression 2008 is shaping up to be a Great Disappointment. Not so much The Grapes of Wrath as Raisins of Mild Inconvenience. Last week the Commerce Department reported that the US economy – battered by the credit crunch, pummelled by a housing market collapse and generally devastated by the wild stampede of animal spirits – actually grew in the first three months of the year.

The rate of expansion – 0.6 per cent – was weak for sure, and it followed a previous quarter of identically weak growth at the end of 2007, but as Depressions go it was singularly unGreat. In the 1930s, you’ll recall, GDP fell by more than 25 per cent. Even the periodic mild recessions we’ve had in the past 20 years at least resulted in some declines in economic activity.

Lest you object – perhaps fairly – that the GDP data are way too backward-looking to be of any use, last week we also got the news that the labour market, the canary in the coalmine of economic data, is actually improving. The US economy lost 20,000 jobs in April, while the unemployment rate ticked down a little to 5 per cent. You don’t have to compare this performance to the Great Depression to think it looks, as downturns go, really quite uplifting. It is, in fact, the gentlest start to a period of labour market weakness since the 1960s.

For comparison, in the first four months of the 2001 recession (which was, by the way, the mildest one in postwar history) employment fell at an average monthly rate of 105,000. In the first four months of this current downturn, the average monthly job losses have been 62,000.

You won’t need me to remind you that in the other Great Depression unemployment rose to an estimated 30 per cent. Worse still for today’s Steinbeck wannabes, as my colleague Anatole Kaletsky noted yesterday, it is starting to look as though world financial markets might be past the worst of the crisis that started all this.

Financial conditions are cautiously returning to something approaching normal. Barometers of distress have shown a distinct turn for the better. Take, for example, the so-called TED spread, a pretty good proxy for the state of financial anxiety. It represents the difference between three-month Libor interest rates and the yield on three-month US Treasury bills. In other words, it measures how risky banks think lending to each other for relatively short periods is compared with the riskless alternative of lending to the Government.

Last Friday the spread fell to its lowest level since the end of February, shortly before the collapse of Bear Stearns. Now, at about 125 basis points, it is still elevated relative to periods of clear normality: the historic norm is between 25 and 50 points. But it’s way down from where it was in March, December and August, when it exceeded 200 points.

So should we be putting out the bunting, declaring victory over the Depression, offering prayers of thanks that we have avoided another Munich or Dunkirk? Not quite. The depression scenario was always overdone, of course, but it is still not clear that the US will actually escape as lightly as this. The principal challenge remains the health of the American consumer.

House prices are still falling and there is plenty of evidence that many Americans, suddenly scared about the value of their house as a nest egg, are retrenching. Even with the Government’s tax rebate cheques dropping on to doormats, caution seems to be the watchword. That also raises the troubling possibility that a period now of shrinking demand could feed back into renewed weakness in the financial system, just as it is starting to heal.

Still, the picture is starting to look quite encouraging. Even if the US has a recession this year, the chances that it will turn into a full-blown slump are not high. Another disappointment for the hyperactive scribbling masses. But rather welcome news for everybody else.

gerard.baker@thetimes.co.uk

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