What we're seeing is reminiscent of the early 1990s -- a jobless recovery.

There is no longer a shadow of doubt that the U.S. economy is downshifting rapidly; the only question is how deep the slowdown goes, ... We do not expect to see recession in 2001, but we certainly expect to see significantly slower growth with continued moderating inflation.

Bearing in mind that the Fed wants higher inflation, the news is not unwelcome. And the market will remain firmly in the camp that the Fed will not tighten soon, ... Nevertheless, the risks from the PPI are easy to see and look real in light of the big decline of the dollar and rise in import costs that preceded them.

This report will not change the Fed's view on the inflation outlook -- they will keep rates low for still some months to come.

Starts at year-end 2003 will provide additional support for GDP during the first two quarters of 2004 as construction activity gradually brings these buildings to completion.

As time passes, excess capacity is being worked off and inventories are being accumulated once again ... [and] companies don't buy enhancements in technology or machinery until after they've seen a pickup in activity.

This report does not give the Fed clear guidance that core inflation's rise in the PPI is topping out, ... It does, however, hint in that direction.

June's swoon is indeed proving to be temporary.

My take is that the Fed will continue to raise overnight rates until it feels it has moved from a stimulative to a neutral policy stance. That will likely take the funds rate to 4 per cent-to-4.25 per cent by yearend.