Steven Wood

Despite the loosening of the labor markets, income gains remain sufficient to support spending at a moderate pace.

New and continuing claims are at levels that historically have been associated with payroll employment gains of around 225,000. Labor markets are gradually improving.

Retail spending was much stronger than anticipated. Although some of these gains were due to post-hurricane spending, it appears that consumers are not yet ready to throw in the towel.

Higher claims suggest slower job gains, which should dampen income growth, consumer spending, and overall economic activity.

While good gains in productivity are economically favorable, it is not a good situation when this occurs because labor input is declining more rapidly than output.

Weakness in the composite index suggests that economic growth will slow over the next three to six months.

With good productivity growth and low inflation, the Fed has room to lower rates even further, if needed.

The Fed will welcome this report as it suggests that slower economic growth will be extended into the third quarter. The probability of an August rate increase continues to diminish and is now below 50 percent.

It's unclear whether the declines are related to year-end concerns or to a more general softening in manufacturing activity, but they do add evidence to the (Fed's) forecast for slower growth going forward.

Inventory building is slightly stronger in January and February than it was in 4Q, suggesting that inventory investment is likely to add modestly to Q1 GDP growth.

The recent pace of growth in the leaders suggests that economic growth should slow from its 3.6 percent over the four quarters through the third quarter of 2005.

Housing-related activity has definitely slowed and its contributions to economic growth, both direct and indirect, will fade over the next couple of quarters.

Despite the strength during the quarter, the period ended on a much weaker note, suggesting (second-quarter) growth is likely to be weaker. These data are unlikely to sway the (Fed) from easing again at (its) May 15th meeting.

The strong historical relationship between the level of the help-wanted index and the year-on-year growth of payroll employment has broken down completely.

The recent movements in the index suggest only moderate economic growth over the next 6 to 9 months.

These data suggest that a bottoming in economic activity is taking place, but a bit more inventory adjustment is needed to insure a re-acceleration in growth.

These data suggest that a bottoming in economic activity is taking place, but that a bit more inventory adjustment is needed to insure a re-acceleration in growth.

Momentum in the leading indicators has slowed over the past year, suggesting an impending slowdown in economic growth.

The general slowing in the growth of the leading indicators over the past year suggests the pace of economic growth should gradually slow over the next three to six to nine months.

This will help boost overall economic growth to above 4 percent our current (third-quarter) estimate is 4.5.

This stronger consumer sentiment may yet translate into solid core consumer spending for the holiday season.

The sharp slowing in domestic demand has dramatically reduced imports. Weakening economic activity in our major trading partners has significantly reduced the foreign demand for American-made products.

While these data will be welcome by the (Fed), two key questions remain. Will the second quarter spending slow down extend through the rest of the year Economic fundamentals suggest they will. And will the spending slowdown be sufficient to relieve pressure on labor markets and inflation At this point, that is still an open question.

Higher interest rates have been weathered by home buyers through the use of adept home financing techniques. Nevertheless, the resilience in the housing sector will support further monetary tightening by the Fed.

Although higher interest rates appear to have begun to have a negative impact on housing activity and consumer spending, sturdy domestic demand and improving international economies have generated an acceleration in manufacturing activity.