It was a sparse week for economic indicators but the reports that were released did support the conventional wisdom that economic activity is slowing markedly. Durable goods orders were held up on the month by volatile aircraft, but pervasive weakness was evident in the second half of 2000. Again, this will dampen industrial production going forward.

The employment cost index, an important measure of compensation pressures faced by employers, showed modest improvement during the final quarter of last year. If not a ringing endorsement that inflation is not an issue, at least the report revealed that wage pressures weren't deteriorating. That would have put Fed officials in a quandary.

Greenspan's testimony before the Senate Budget Committee focused on fiscal policy, but he noted that tax cuts could help get the economy back on its feet in case of a serious recession (which he wasn't necessarily predicting). He also noted that economic growth was near zero in the fourth quarter. (Real GDP figures will be out next week during the FOMC meeting.)

After all is said and done, market players appear to be factoring in a 50 basis point drop in the federal funds rate target at the January 30-31 FOMC meeting. The Fed will have a few more pieces of information at their disposal when they meet. The Fed gets early information on the NAPM survey (which is formally released a day after their meeting) and will once again have preliminary data on factory employment and hours (the employment report will be out that Friday).