Global Insights provides a great summary of the U.S. economy and economic outlook. If you only want to read one short report on the state of the U.S. economy, this is it.

Third-quarter GDP growth was revised up to 2.2%, from 1.6%””although growth probably slowed to below 2% in the fourth quarter. The revised report showed surging profits, plus a big downward revision to labor compensation. The latter means that household finances are worse than they had seemed””but also that labor costs are less threatening for inflation.

What about 2007?

Looking forward to 2007, the question remains whether the economy will bounce back to trend growth (3%) or above as the decline in residential construction becomes less steep, or whether the weakness in housing will spill over to the rest of the economy””e.g., consumer spending and retail construction. We expect some spillovers keeping growth subpar in 2007 (i.e., below 3%) and helping core inflation to ease lower, eventually paving the way for the Federal Reserve to lower interest rates (beginning in May 2007). But as Chairman Bernanke made clear on November 28, for now the Fed is still debating whether or not interest rates should go higher, based on continuing worries about inflation, not whether they should be cut.

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