Matt's Analysis:

As discussed above, it appears that U.S. GDP is slowing down into the 2% range for the next two to three quarters. While further declines in the residential housing market should suppress consumer spending, it’s important to pay very close attention to the jobs numbers. If the economy can continue to create jobs as it did in the third quarter, an “orderly slowdown” scenario appears very realistic.

The shakeout from this summer’s disruption in the credit markets continues. Big Wall Street banks are reporting billions of dollars in write-downs and mortgage companies have obviously suffered tremendous losses. Remarkably, the impact on the total domestic economy thus far has not been dramatic. However, it’s not over and it could still get worse.

With inflation seemingly not a major concern at this time, the Fed has room to lower interest rates if necessary and many expect rates to be slightly lower by 1Q, 2008. It seems very unlikely that rates will be any higher in the near future.

In conclusion, the scenario of a soft landing accompanied by moderately lower interest rates is good news for business and for investors. We hope to look back on this time as a mid-cycle slowdown rather than a recession.

© 2007 Childs Company