Steven Wood Declines Quotations

We still expect economic activity to slow over the next several quarters as consumer spending slows further and housing declines more because of higher interest rates and energy costs. The absence of inflation will be welcomed at the Federal Reserve.

Unless there is a quick rebound in sales, this suggests further weakness in production and declines in inventories over the months ahead.

With last week's Fed tightening, mortgage rates have continued to rise, so that further declines in housing activity are likely over the balance of the year. Nevertheless, robust labor markets and rising incomes have helped sustain housing at a relatively high level.

These data indicate that the manufacturing sectors of the economy are still reeling from slowing demand and bloated inventories. Further declines in output are likely.

There are a few tentative hints -- higher new orders, a drop in the inventory-to-sales ratio -- that the period of maximum weakness has likely passed. Although further declines in output are anticipated, the rate of decline should gradually diminish.

Industrial activity is contracting across a broad set of industries, reflecting the declines in both consumer and business spending.

Consumer optimism climbed higher in December after soaring in November. This followed huge back-to-back declines in the aftermath of Hurricanes Katrina and Rita and the associated surge in energy prices.

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.