U.S.: The Slowdown May Be Nasty But Short

Without a doubt, the economic landscape looks foreboding right now. Consumers have lost confidence. Businesses are cutting back sharply, and investors are worried about future growth and profits. All in all, it's a painful picture. But there are reasons to believe that the worst of the slowdown will be limited to the first quarter, and that the second half will look and feel better.

Three factors support the notion that the slowdown will be sharp but short: aggressive government action, businesses' ability to adjust inventories quickly, and still-healthy labor markets. The outlook also got a boost from the strong January data on car sales, brisk retail activity, and a better-than-expected 268,000 new jobs. Although weather skewed the data, they indicate that the economy is not in such dire straits as the dismal news of November and December suggested.