Industrial production grew faster than expected in June and housing activity is percolating at a healthy rate. Inflation is not a problem, and even new jobless claims fell sharply in the second week of July. Fed Chairman Alan Greenspan testified before two congressional committees this week on the economic outlook and suggested that the economic recovery is in place. Indeed, Greenspan appeared to believe that consumer spending is just fine these days despite the fact that consumer confidence surveys are showing some deterioration in optimism. The Fed chairman remains concerned about the pace of capital spending. On the whole, Fed officials are still looking for a healthy rate of growth this year, albeit somewhat moderate for the first year of recovery. Nevertheless, it is important to remember that the recession was relatively mild, so pent-up demand for consumer goods and housing is limited and won't lead to robust activity.

Equity markets remain disconnected to economic activity. Investors are indeed concerned about the soft pace of corporate profits, concern that is being exacerbated by corporate malfeasance and global terrorism.